Final Regulations for Health Coverage Portability; Final Rule and Request for Information on Benefit-Specific Waiting Periods Under HIPAA Titles I & IV; Final Rule
[12/30/2004]

Volume 69, Number 250, Page 78719-78799

[[Page 78719]]
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Part III
Department of the Treasury
Internal Revenue Service
26 CFR Parts 54 and 602
Department of Labor
Employee Benefits Security Administration
29 CFR Part 2590
Department of Health and Human Services
Centers for Medicare & Medicaid Services
45 CFR Parts 144 and 146
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Final Regulations for Health Coverage Portability; Final Rule
Notice of Proposed Rulemaking for Health Coverage Portability and
Request for Information on Benefit-Specific Waiting Periods Under HIPAA
Titles I & IV; Proposed Rules
[[Page 78720]]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 54 and 602
[TD 9166]
RIN 1545-AX84
DEPARTMENT OF LABOR
Employee Benefits Security Administration
29 CFR Part 2590
RIN 1210-AA54
DEPARTMENT OF HEALTH AND HUMAN SERVICES
Centers for Medicare & Medicaid Services
45 CFR Parts 144 and 146
RIN 0938-AL43
Final Regulations for Health Coverage Portability for Group
Health Plans and Group Health Insurance Issuers Under HIPAA Titles I &
IV
AGENCIES: Internal Revenue Service, Department of the Treasury;
Employee Benefits Security Administration, Department of Labor; Centers
for Medicare & Medicaid Services, Department of Health and Human
Services.
ACTION: Final regulation.
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SUMMARY: This document contains final regulations governing portability
requirements for group health plans and issuers of health insurance
coverage offered in connection with a group health plan. The rules
contained in this document implement changes made to the Internal
Revenue Code, the Employee Retirement Income Security Act, and the
Public Health Service Act enacted as part of the Health Insurance
Portability and Accountability Act of 1996.
DATES: Effective date. These final regulations are effective February
28, 2005.
Applicability date. These final regulations apply for plan years
beginning on or after July 1, 2005.
FOR FURTHER INFORMATION CONTACT: Dave Mlawsky, Centers for Medicare &
Medicaid Services (CMS), Department of Health and Human Services, at 1-
877-267-2323 ext. 61565; Amy Turner, Employee Benefits Security
Administration, Department of Labor, at (202) 693-8335; or Russ
Weinheimer, Internal Revenue Service, Department of the Treasury, at
(202) 622-6080.
SUPPLEMENTARY INFORMATION:
Customer Service Information
To assist consumers and the regulated community, the Departments
have issued questions and answers concerning HIPAA. Individuals
interested in obtaining copies of Department of Labor publications
concerning changes in health care law may call a toll free number, 1-
866-444-EBSA (3272), or access the publications on-line at http://www.dol.gov/ebsa
, the Department of Labor's Web site. These regulations as well as
other information on the new health care laws are also available on the
Department of Labor's interactive web pages, Health Elaws. In addition,
CMS's publication entitled ``Protecting Your Health Insurance
Coverage'' is available by calling 1-800-633-4227 or on the Department
of Health and Human Services' Web site (http://www.cms.hhs.gov/hipaa1), which
includes the interactive webpages, HIPAA Online. Copies of the HIPAA
regulations, as well as notices and press releases related to HIPAA and
other health care laws, are also available at the above-referenced Web
sites.
A. Background
The Health Insurance Portability and Accountability Act of 1996
(HIPAA), Public Law 104-191, was enacted on August 21, 1996. HIPAA
amended the Internal Revenue Code of 1986 (Code), the Employee
Retirement Income Security Act of 1974 (ERISA), and the Public Health
Service Act (PHS Act) to provide for, among other things, improved
portability and continuity of health coverage. Interim final
regulations implementing the HIPAA provisions were first made available
to the public on April 1, 1997 (published in the Federal Register on
April 8, 1997, 62 FR 16894) (April 1997 interim rules). On December 29,
1997, the Departments published in the Federal Register (62 FR 67688) a
clarification of the April 1997 interim rules as they relate to
excepted benefits. On October 25, 1999, the Departments published a
notice in the Federal Register (64 FR 57520) soliciting additional
comments on the portability requirements based on the experience of
plans and issuers operating under the April 1997 interim rules.
After consideration of all the comments received on the portability
provisions, the Departments are publishing these final regulations.
These final regulations do not significantly modify the framework
established in the April 1997 interim rules. Instead, these final
regulations implement changes to improve the portability of health
coverage while seeking to minimize burdens on group health plans and
group health insurance issuers. These final regulations become
applicable to plans and issuers on the first day of the plan year
beginning on or after July 1, 2005. Each plan or issuer must continue
to comply with the April 1997 interim rules until these final
regulations become applicable to that plan or issuer. In addition, the
Departments are publishing proposed regulations elsewhere in this issue
of the Federal Register to address additional and discrete issues.
B. Overview of the Final Regulations
1. Definitions--26 CFR 54.9801-2, 29 CFR 2590-701-2, 45 CFR 144.103
This section of the final regulations provides most of the
definitions used in the regulations implementing HIPAA. In addition to
some minor restructuring of the April 1997 interim rules (i.e., some
definitions have been moved into other sections of the regulations),
some additional terms have been added. Among the new terms is the
definition of the term dependent. Dependent is defined as any
individual who is or may become eligible for coverage under the terms
of a group health plan because of a relationship to a participant. This
is intended to clarify that for purposes of HIPAA the terms of the
group health plan determine which individuals are eligible for coverage
as a dependent under the plan. Thus, for example, the plan terms
control the age (if any) at which and conditions under which a child of
a participant ceases to be eligible for coverage as a dependent.
Moreover, whether an individual is eligible for special enrollment as a
dependent is determined in part based on the plan's definition of
dependent.
2. Limitations on Preexisting Condition Exclusions--26 CFR 54.9801-3,
29 CFR 2590.701-3, 45 CFR 146.111
This section of the final regulations addresses HIPAA's limitations
on a plan's or issuer's ability to impose a preexisting condition
exclusion. Comments addressing this topic generally approved of the
approach taken in the Departments' April 1997 interim rules.
Accordingly, these final regulations do not modify significantly the
April 1997 interim rules but instead add several clarifications to the
general framework already established. Also, some comments reflect a
misunderstanding of the notice requirements for plans and issuers that
impose a preexisting condition exclusion. Thus, these final regulations
are restructured to clarify these notice
[[Page 78721]]
obligations. In addition, an example in the regulations contains
language that plans and issuers can use to satisfy the notice
requirements.
Definition of a Preexisting Condition Exclusion
In these final regulations, a preexisting condition exclusion
continues to be defined broadly. A preexisting condition exclusion is
any limitation or exclusion of benefits relating to a condition based
on the fact that the condition was present before the effective date of
coverage, whether or not any medical advice, diagnosis, care, or
treatment was recommended or received before that day. This definition
has been moved to this section on limitations on preexisting condition
exclusions to emphasize the difference between the broadness of the
definition and the narrowness of permissible preexisting condition
exclusions. The definition has also been modified slightly from the
previous definition and clarifications of its application have been
added.
If a plan exclusion satisfies the definition of a preexisting
condition exclusion, it is subject to the rules of this section for
preexisting condition exclusions. Under the April 1997 interim rules,
whether an exclusion is a preexisting condition exclusion is determined
by whether the plan provision restricts benefits for a condition
because it was present before the ``first day of coverage.'' These
final regulations have replaced the term first day of coverage with
effective date of coverage under a group health plan or health
insurance coverage. In the case of a plan that changes health insurance
issuers, ``first day of coverage'' can be read to mean only the first
day of coverage under the plan and not the first day of coverage under
the new issuer's policy or contract (because ``first day of coverage''
is thus defined for purposes of determining the enrollment date). This
reading would mean that an exclusion of benefits based on the fact that
a condition existed before the effective date of coverage in the health
insurance of the succeeding issuer would not be a preexisting condition
(because it would not apply based on the fact that a condition existed
before the first day of coverage under the plan). The phrase
``effective date of coverage under a group health plan or health
insurance coverage'' under the final regulations thus applies to
coverage either under a plan or health insurance coverage. Therefore, a
provision used by a succeeding issuer to deny benefits for a condition
because it arose before the effective date of coverage under the new
policy would also fit the definition of a preexisting condition
exclusion.
Since the April 1997 interim rules were published, several
situations have repeatedly arisen in which a plan exclusion is not
designated as a preexisting condition exclusion but nevertheless
satisfies the definition of a preexisting condition exclusion. Examples
have been added to illustrate some of these common plan provisions.
These situations include a plan provision that provides coverage for
accidental injury only if the injury occurred while covered under the
plan, a plan provision that counts against a lifetime limit benefits
received under prior health coverage, and a plan provision that denies
benefits for pregnancy until 12 months after an individual generally
becomes eligible for benefits under the plan.\1\ The regulations also
include a series of examples relating to exclusions for congenital
conditions. These examples illustrate that a plan that generally
provides benefits for a condition cannot exclude benefits for the
condition in instances where it arises congenitally without complying
with these limitations on preexisting condition exclusions. However,
these limitations would not apply if a plan excludes benefits for all
instances of a condition, even if all instances are likely to be
congenital. Plans and policies that contain these types of preexisting
condition exclusions that are not designated as such should be modified
to comply with HIPAA's requirements for preexisting condition
exclusions, or the exclusions should be deleted. In addition, because a
preexisting condition exclusion discriminates against individuals based
on one or more health factors, unless a preexisting condition exclusion
complies with HIPAA's limitations on preexisting condition exclusions,
the plan provision will also violate the HIPAA nondiscrimination
provisions.\2\
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\1\ Several comments (including those of several State insurance
commissioner's offices) have asked the Departments to clarify that a
preexisting condition exclusion would also include any waiting
period or other temporary benefit exclusion (other than a waiting
period on all benefits). The Departments are publishing separately
in this issue of the Federal Register a Request for Information,
which invites further comments on this issue of benefit-specific
waiting periods.
\2\ See 26 CFR 54.9802-1T(b)(3), 29 CFR 2590.702(b)(3), and 45
CFR 146.121(b)(3), published on January 8, 2001 at 66 FR 1378.
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General Rules Governing Preexisting Condition Exclusions
In addition to modifying the definition of a preexisting condition
exclusion, these final regulations set forth HIPAA's limitations on
preexisting condition exclusions, as follows:
Six-Month Look-Back Rule
The final regulations retain the 6-month look-back rule set forth
in the April 1997 interim rules. In addition, these regulations clarify
that a plan or issuer can use a period shorter than 6 months for
purposes of applying the 6-month look-back rule. Examples in these
final regulations also clarify that if a doctor's recommendation for
treatment occurs before the 6-month look-back period, an individual can
be subject to a preexisting condition exclusion only if the individual
receives the recommended treatment within the 6-month look-back period.
Maximum Length of Preexisting Condition Exclusion
The final regulations retain the rule set forth in the April 1997
interim rules that a preexisting condition exclusion is not permitted
to extend for more than 12 months (18 months in the case of a late
enrollee) after the enrollment date.
Reducing a Preexisting Condition Exclusion Period by Creditable
Coverage
The final regulations retain the rule set forth in the April 1997
interim rules. Accordingly, under these final regulations, the period
of any preexisting condition exclusion that would otherwise apply to an
individual under a group health plan is reduced by the number of days
of creditable coverage \3\ the individual has as of the enrollment date
(not including any days before a significant break in coverage). Some
comments asked how this rule applies to individuals who currently have
coverage under another plan (that is, the coverage has not yet ended).
An example clarifies that a plan or issuer must count all days of
creditable coverage prior to an individual's enrollment date, even if
that coverage is still in effect.
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\3\ For purposes of these regulations, the phrase ``days of
creditable coverage'' has the same meaning as the phrase ``aggregate
of the periods of creditable coverage'' as such phrase is used in
the statute.
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Other Standards
The final regulations retain the statement that other legal
standards may apply to group health coverage preexisting condition
exclusions. In this connection, the Department of Labor's Veterans'
Employment and Training Service (VETS) has commented that the Uniformed
Services Employment and Reemployment Rights Act (USERRA) provides
reemployment rights for persons who leave civilian employment to
perform service in the uniformed
[[Page 78722]]
services and prohibits employer discrimination against any person on
the basis of the person's military service, obligations, intent to join
or certain other protected activities. In general, USERRA reemployment
rights apply to persons who leave civilian employment to serve a single
enlistment period in the active military or to employees who are
members of the National Guard or Reserve and are required to perform
intermittent military service or training. USERRA provides rights
regarding both continuation of group health plan coverage by an
employee who is absent to perform service in the uniformed services and
reinstatement of group health plan coverage upon reemployment if the
coverage was interrupted by the service. In response to this comment,
the final regulations include a statement that USERRA can affect the
application of a preexisting condition exclusion to certain individuals
who are reinstated in a group health plan following active military
service. For more information, a VETS directory and additional USERRA
information is available at http://www.dol.gov/vets.
Enrollment Definitions
Both the 6-month look-back period and the maximum length of
preexisting condition exclusion are measured with respect to an
individual's enrollment date. The final regulations generally retain
the enrollment definitions that were set forth in the April 1997
interim rules (including definitions of enrollment date, waiting
period, and late enrollee). Under HIPAA, the April 1997 interim rules,
and these final regulations, the enrollment date is the first day of
coverage under the plan or, if there is a waiting period, the first day
of the waiting period. These final regulations clarify that if an
individual receiving benefits under a group health plan changes benefit
package options, or if the plan changes group health insurance issuers,
the individual's enrollment date remains the same.
The Departments received several comments reflecting confusion
about the relationship between the preexisting condition exclusion
rules and the definitions of enrollment date and waiting period.
Accordingly, guidance concerning waiting periods previously located in
the definitions section has been moved to this section of the
regulations and expanded. In addition, the definition of waiting period
has been modified with respect to individuals seeking individual market
coverage. Specifically, these final rules clarify that if an individual
seeks coverage in the individual market, a waiting period begins on the
date the individual submits a substantially complete application for
coverage and ends on either the date coverage begins (if the
application results in coverage), or the date on which the application
is denied by the issuer or the date on which the offer of coverage
lapses (if the application does not result in coverage). Under the
statute, the April 1997 interim rules, and these final regulations, the
effect of considering this period a waiting period is that the period
is not counted when determining the length of any break in coverage.
This rule modifies the rule contained in the April 1997 interim rules
(which provided a waiting period only if the individual actually
obtained coverage). The modification addresses situations where some
individuals have been denied individual market policies or individuals
declined coverage because, for example, the policies had an exorbitant
premium.
Additional examples illustrate the interaction between a waiting
period and the 6-month look-back period, the application of the 6-month
look-back and maximum preexisting condition exclusion period rules to
plans with more than one benefit package option at open season, and the
interaction between these rules and other eligibility criteria under
the plan.
Individuals and Conditions That Cannot Be Subject to a Preexisting
Condition Exclusion
Under HIPAA, the April 1997 interim rules, and these final rules, a
preexisting condition exclusion cannot be applied to pregnancy. Nor can
a preexisting condition exclusion be applied to a newborn, adopted
child, or child placed for adoption if the child is covered under a
group health plan (or other creditable coverage) within 30 days after
birth, adoption, or placement for adoption.
One comment noted that the rule for newborns in the April 1997
interim rules is expressed inconsistently. Some of those expressions
are inconsistent with the rule for adopted children. Specifically, the
rule for adopted children and one expression of the rule for newborns
refers to eligibility being conditioned on being covered under any
creditable coverage as of the last day of the 30-day period after
birth, adoption, or placement for adoption. However, in other
expressions of the rule for newborns, a reference is made to being
covered under creditable coverage within 30 days after birth. These
final regulations use one term consistently, referring to coverage
within 30 days after birth, adoption, or placement for adoption. This
accords with the conference report. H.R. Conf. Rep. No. 736, 104th
Cong. 2d Session 184-185 (1996). Consequently, if, for example, a child
is covered within 30 days of birth, the child cannot be subject to a
preexisting condition exclusion even if the child is no longer covered
under the plan on the 30th day after birth (unless the child has a
significant break in coverage).
Several comments noted that State laws applicable to health
insurance issuers sometimes require that a mother's health coverage
must provide benefits for health care expenses incurred for the child
for a specified period following birth and cannot be recouped even if
the child never enrolls in the plan under which the mother is covered.
A new example clarifies that, in this situation, the child has
creditable coverage within 30 days after birth and, therefore, no
preexisting condition exclusion may be imposed on the child unless the
child has a subsequent significant break in coverage.
Finally, HIPAA, the April 1997 interim rules, and these final
regulations provide that a group health plan, and a health insurance
issuer offering group health insurance coverage, may not impose a
preexisting condition exclusion relating to a condition based solely on
genetic information. Comments expressed concern that the definition of
genetic information in the April 1997 interim rules was too broad and
would prevent the application of a preexisting condition exclusion to
conditions that would be otherwise permitted independent of any genetic
information. Although these regulations have not changed the definition
of genetic information, the regulations clarify that if an individual
is diagnosed with a condition, even if the condition relates to genetic
information, the plan may impose a preexisting condition exclusion with
respect to the condition, subject to the other limitations of this
section. This rule was located in the definition of medical condition
in the April 1997 interim rules. Some comments indicated this rule was
difficult to locate. Thus, it has been moved to this section, and an
example illustrating the rule has been added.
First Notice of Preexisting Condition Exclusion--General Notice
Under these final regulations, as with the April 1997 interim
rules, a group health plan imposing a preexisting condition exclusion,
and a health insurance issuer offering group health insurance coverage
under a plan imposing a preexisting condition
[[Page 78723]]
exclusion, must provide a written general notice of preexisting
condition exclusion before it can impose a preexisting condition
exclusion.
After publication of the April 1997 interim rules, the Departments
received questions about the operation of this requirement. The April
1997 interim rules provided that a plan or issuer could not impose a
preexisting condition exclusion with respect to a participant or
dependent before providing the general notice to the participant.
Several comments asked whether plans and issuers could delay providing
the general notice until a large claim was filed and then pend the
claim until the general notice was sent. Other comments expressed
concern that if plans do not notify individuals upon enrollment about
the benefit exclusions that apply to their coverage, individuals will
not be able to make informed decisions about their health care choices.
The Departments had contemplated under the April 1997 interim rules
that individuals should be provided the information required in the
general notice before they incurred claims that could be denied under a
preexisting condition exclusion. These final regulations clarify the
procedural requirements for the general notice of preexisting condition
exclusion. Specifically, under the final regulations, the general
notice of preexisting condition exclusion must be provided as part of
any written application materials distributed by the plan or issuer for
enrollment. If the plan or issuer does not distribute such materials,
the notice must be provided by the earliest date following a request
for enrollment that the plan or issuer, acting in a reasonable and
prompt fashion, can provide the notice. Moreover, regarding the content
of this general notice, the final regulations clarify precisely what is
required when disclosing the existence and terms of the plan's
preexisting condition exclusion. In addition, these final regulations
require the notice to include the person to contact (including an
address or telephone number) for obtaining additional information or
assistance regarding the preexisting condition exclusion. An example in
these final regulations sets forth sample language that plans and
issuers can use when developing the general notice for their coverages.
Issuers that sell different policies to different plans should also
be aware that when describing the existence and terms of the maximum
preexisting condition exclusion period, the issuer must describe to
individuals the actual maximum exclusion period under their policy.
Therefore, if an issuer sells two policies, one with a 6-month and one
with a 12-month maximum preexisting condition exclusion, the issuer
could not send one notice to individuals under both policies indicating
that the maximum preexisting condition exclusion is 12 months. Instead,
the issuer is required to send one notice to participants under the
policy with the 6-month preexisting condition exclusion (indicating
that the maximum exclusion period is 6 months) and a different notice
to participants under the policy with the 12-month preexisting
condition exclusion (indicating that the maximum exclusion period is 12
months).
Determination of Creditable Coverage
These final regulations require a plan or issuer that imposes a
preexisting condition exclusion to make a determination of creditable
coverage within a reasonable time after receiving information regarding
prior health coverage. This rule was included in the section of the
April 1997 interim rules addressing certification and disclosure of
previous coverage, and it has been moved to this section on preexisting
condition exclusions unchanged. These final regulations clarify that a
plan or issuer may not impose any limit on the amount of time that an
individual has to present a certificate or other evidence of creditable
coverage.\4\
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\4\ Of course, after a claim has been denied under a preexisting
condition exclusion, other laws, such as section 503 of ERISA, may
set forth timing rules for an individual to appeal a denied claim.
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Second Notice of Preexisting Condition Exclusion--Individual Notice
These final regulations retain the requirement to provide an
individual a written notice of the length of preexisting condition
exclusion that remains after offsetting for prior creditable coverage.
These final regulations clarify that this individual notice is not
required to identify any medical conditions specific to the individual
that could be subject to the exclusion. Also, a plan or issuer is not
required to provide this notice if the plan or issuer does not impose
any preexisting condition exclusion on the individual or if the plan's
preexisting condition exclusion is completely offset by the
individual's prior creditable coverage. These final regulations add a
new example that illustrates how the notice works and includes sample
language that may be helpful to plans and issuers in developing this
type of notice with respect to their coverage.
Reconsideration
Consistent with the April 1997 interim rules, these final
regulations do not prevent a plan or issuer from modifying an initial
determination of creditable coverage if it determines that the
individual did not have the claimed creditable coverage and if certain
procedural requirements are met. The final regulations have been
slightly reorganized and modified to make clearer that a plan or issuer
is permitted to modify its initial determination if a notice of the new
determination (that meets the requirements of the second, individual
notice of preexisting condition exclusion, described above) is provided
and, until the notice of the new determination is provided, the plan or
issuer acts in a manner consistent with the initial determination for
purposes of approving access to medical services (such as pre-surgery
authorization).
3. Rules Relating to Creditable Coverage--26 CFR 54.9801-4, 29 CFR
2590.701-4, 45 CFR 146.113
This section of the final regulations describes the varieties of
health coverage that constitute creditable coverage and sets forth
rules for how to count creditable coverage for purposes of the rule
requiring plans and issuers to offset the maximum length of a
preexisting condition exclusion by prior creditable coverage.
Creditable Coverage
The rules in the final regulations describing the varieties of
health coverage that constitute creditable coverage generally follow
the April 1997 interim rules, with two modifications. The April 1997
interim rules contain ten categories of creditable coverage. After
publication of the April 1997 interim rules, Congress created the State
Children's Health Insurance Program (S-CHIP), which allows states to
provide health coverage to eligible children through Medicaid expansion
or private market mechanisms. This coverage meets the definition of
creditable coverage as either Medicaid coverage, group health plan
coverage, or health insurance coverage. In addition, Congress
specifically provides \5\ that S-CHIP coverage is creditable coverage
under HIPAA. Therefore, these final regulations have added coverage
under S-CHIP as an eleventh category of creditable coverage.
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\5\ Section 2109 of the Social Security Act, enacted by section
4901 of the Balanced Budget Act of 1997, Pub. L. 105-33, 111 Stat.
567.
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The second modification is to the definition of public health plan.
This
[[Page 78724]]
definition has been changed in two ways. The first change relates to
the type of health coverage provided by a public health plan. The
statute does not define the term. The April 1997 interim rules limit
the definition of public health plans to certain plans provided through
health insurance coverage. Some comments suggested it was unnecessary
to restrict the definition to insured coverage and argued that the term
public health plan should be expanded. These final regulations delete
the word ``insurance'' from that requirement so that any health
coverage provided by a governmental entity, regardless of whether it
has the risk-shifting or risk-distributing effects of insurance, is a
public health plan.
The second change to the definition of public health plan relates
to the type of governmental entity that can establish or maintain a
public health plan. Under the April 1997 interim rules, only health
coverage provided under a plan established or maintained by a State, a
county, or another political subdivision of a State can be a public
health plan. This definition does not include a plan established or
maintained by a foreign government or the U.S. government. The preamble
to the April 1997 interim rules specifically solicited comments on
whether public health systems of foreign countries should be considered
public health plans.
Many comments addressed this issue, arguing both for and against
including public health systems of foreign governments in the
definition of public health plan. The comments in favor of inclusion
argued that generally the health coverage provided through public
health systems in foreign countries is more comprehensive than that
received in this country. Some comments argued that the exclusion of
foreign public health systems from the definition of public health plan
arbitrarily penalizes individuals who maintain continuous health
coverage through a foreign public health system. The comments against
inclusion focused on the difficulty for a plan or issuer to verify
whether someone had the coverage they claimed under a foreign public
health system.
Under these final regulations, the definition of a public health
plan includes health coverage provided under a plan established or
maintained by a foreign country or a political subdivision. While this
result can inconvenience plans and issuers, verifying this type of
coverage may be no more inconvenient than verifying certain other types
of coverage, such as group health coverage provided through foreign
employers. In addition, this result is much less inequitable than
denying an individual coverage for a preexisting condition in a case in
which the individual can provide reliable evidence of having coverage
under the public health system of a foreign government. Under the rules
for establishing creditable coverage in the absence of a certificate of
creditable coverage, an individual is required to present at a minimum
some corroborating evidence of the claimed creditable coverage and is
required to cooperate with a plan's or issuer's efforts to verify
coverage. Thus, in the case of an individual claiming coverage under
the public health system of a foreign country, a plan or issuer could
require some evidence of residency in the foreign country (or evidence
that some other eligibility standard had been met) and the individual
would have to cooperate with the plan's or issuer's efforts to verify
that the individual had coverage under that country's health system.
Under the revised definition in these final regulations, health
coverage provided under a plan established or maintained by the U.S.
Government is also a public health plan.
Counting Creditable Coverage
The rules in the final regulations for how to count creditable
coverage are adopted with stylistic and conforming changes from the
April 1997 interim rules. In addition, a technical modification was
added, as required by a statutory change made by the Trade Act of 2002
(``the Trade Act'', Public Law 107-210, enacted on August 6, 2002).
Under the Trade Act, workers whose employment is adversely affected by
international trade may become entitled to receive trade adjustment
assistance (TAA) and a 65% health coverage tax credit (HCTC). The Trade
Act also amended COBRA continuation coverage provisions in ERISA, the
Public Health Service Act, and the Internal Revenue Code, to provide a
second opportunity to elect COBRA for individuals who are eventually
determined to qualify for TAA, but who did not elect COBRA after their
original loss of health coverage. Because this could result in a
``significant break in coverage'' for purposes of HIPAA, the Trade Act
specifies that the period beginning with the loss of coverage, and
ending on the first day of the second election period, for individuals
who elect COBRA during this second election period, should be
disregarded for purposes of the HIPAA pre-existing condition
provisions. Accordingly, as required by the Trade Act, under these
final rules the days between the date an individual lost group health
plan coverage and the first day of the second COBRA election period are
not taken into account in determining whether a significant break in
coverage has occurred. For more information on TAA, contact the
Department of Labor's Employment and Training Administration at 877-
US2-JOBS or at http://www.doleta.gov/tradeact. For more information on the
HCTC, contact the IRS toll-free at 866-628-4282.
The existing examples relating to the tolling of the period for
determining a significant break in coverage in the case of individuals
seeking coverage in the individual market have also been modified to
conform to the change in the definition of waiting period, which under
these final regulations includes the period beginning when an
individual submits a substantially complete application for coverage in
the individual market and ends when the application is denied or when
the offer of coverage lapses. In addition, here, as throughout these
final regulations, references in the April 1997 interim rules to ``plan
or policy'' have been revised so that the reference includes health
insurance coverage not offered through a policy of insurance, such as
health insurance coverage offered through a contract of a health
maintenance organization.
Published elsewhere in this issue of the Federal Register is a
proposed rule that provides that the period that determines whether a
significant break in coverage has occurred (generally 63 days) is
tolled in cases in which a certificate of creditable coverage is not
provided on or before the day coverage ceases. In those cases, the
significant-break-in-coverage period would be tolled until a
certificate is provided or, if earlier, until 44 days after the
coverage ceases.
These final regulations retain the methods in the April 1997
interim rules for counting creditable coverage, that is, the standard
method and the alternative method. Comments requested that the
alternative method be expanded so that a plan or issuer could elect to
have it apply to categories in addition to the five categories
prescribed in the April 1997 interim rules (mental health; substance
abuse treatment; prescription drugs; dental care; and vision care). The
types of categories described in the comments were significant
differences in deductibles, cost-sharing, or out-of-pocket maximums
between plans. One comment suggested that any comparison between plans
on the basis of difference in deductibles or cost sharing was
unworkable.
[[Page 78725]]
It is the view of the Departments that a comparison between plans,
and allowing one plan not to count creditable coverage (in whole or in
part) under another plan, based solely on differences in deductibles or
in some other cost-sharing mechanism or in all cost-sharing mechanisms,
is an insufficient basis for determining the comparative value of
benefits under the plans. A plan with a low deductible or low co-
payments might also have an annual or per-incident limit on benefits so
low as to make the plan with the higher deductible or higher cost
sharing actually more valuable. Similarly, a plan with a higher
deductible or coinsurance might also have a higher table of usual,
customary, and reasonable costs, might be much more liberal in covering
treatments considered experimental, and might provide a much broader
base of benefits than the plan with the lower deductible or
coinsurance. Because of the numerous ways that plans or issuers can
limit the amount of benefits available under the plan, it is very
complicated to compare the value of one plan or coverage with another.
Singling out one or several of these features is insufficient for
making a true comparison of the value of the benefits.
4. Evidence of Creditable Coverage--26 CFR 54.9801-5, 29 CFR 2590.701-
5, 45 CFR 146.115
This section of the final regulations sets forth guidance regarding
the certification requirements and other requirements for disclosure of
information relating to prior creditable coverage. The provision of a
certificate and certain other disclosures of information provided for
in the statute, the April 1997 interim rules, and these final
regulations are intended to enable an individual to establish prior
creditable coverage for purposes of reducing or eliminating any
preexisting condition exclusion imposed on the individual by any
subsequent group health plan coverage. The Departments received
generally favorable comments on the April 1997 interim rules from
interested parties who submitted comments with regard to the
certification requirements. For example, several comments praised the
Departments' promulgation of a model certificate in the April 1997
interim rules as a vehicle that helped reduce compliance burdens
associated with the statutory requirements under HIPAA.
Form of Certificate
These final regulations retain the requirement that the certificate
must generally be provided in writing. The April 1997 interim rules
clarified that for this purpose a writing included any form approved by
the Secretaries as a writing. These final regulations modify that
standard to include any other medium approved by the Secretary. As with
the April 1997 interim rules, these final regulations provide that
where an individual requests that the certificate be sent to another
plan or issuer instead of the individual, and the other plan or issuer
agrees, the certification information may be provided by other means,
such as by telephone.
Information in Certificate
The information required to be provided in a certificate under
these final regulations is the same as required under the April 1997
interim rules with one addition. In response to recommendations made by
the U.S. General Accounting Office (GAO) \6\ and several comments, the
Departments have modified the April 1997 interim rules to require that
an educational statement be provided as part of a certificate of
creditable coverage in order to inform consumers of their HIPAA rights.
Some comments stated that such educational language was not necessary,
but indicated that if the Departments adopted such an approach they
should provide language for compliance purposes. In response to the GAO
recommendation, the Departments have amended the requirements for the
certificate of creditable coverage in the final regulations to include
the provision of an educational statement regarding certain HIPAA
protections. Model educational language is provided in the model
certificate (set forth below). This eliminates the burden on plans and
issuers of developing language to satisfy this requirement.
---------------------------------------------------------------------------
\6\ In the report entitled ``PRIVATE HEALTH INSURANCE: Progress
and Challenges in Implementing 1996 Federal Standards'' (GAO/HEHS-
99-100, May 12, 1999) the GAO recommended that the Departments
revise the model certificate of creditable health plan coverage to
more explicitly inform consumers of their new rights under HIPAA. At
a minimum, the GAO recommended that the certificate of creditable
coverage should inform consumers about appropriate contacts for
additional information about HIPAA and highlight key provisions and
restrictions, including (1) the limits on preexisting condition
exclusion periods and the guaranteed renewability of all health
coverage; (2) the reduction or elimination of preexisting condition
exclusion periods for employees changing jobs; (3) the prohibition
against excluding an individual from an employer health plan on the
basis of health status; and (4) the guarantee of access to insurance
products for certain individuals losing group health coverage and
the restrictions placed on that guarantee.
---------------------------------------------------------------------------
Model Certificate
The first model certificate below has been authorized by the
Secretary of each of the Departments. The model educational statement
is set forth under the heading ``Statement of HIPAA Portability
Rights.'' Use of the model certificate by group health plans and group
health insurance issuers will satisfy the requirements of paragraph
(a)(3)(ii) of the regulations. The second model certificate below has
been authorized by the Secretary of Health and Human Services. State
Medicaid programs may use this version. Once these final regulations
are applicable, use of the previously-published model certificate
(published in the preamble to the April 1997 interim rules) will no
longer satisfy paragraph (a)(3)(ii) of the regulations.
In addition to these model certificates, the Departments are
publishing a different model certificate for group health plans and
group health insurance issuers in the preamble to the proposed rules
published elsewhere in this issue of the Federal Register. That model
certificate includes in its educational statement an additional
paragraph regarding coordination with rules under the Family and
Medical Leave Act (FMLA). The Secretaries of the Departments authorize
plans and issuers to use either model certificate in fulfillment of
their obligations under paragraph (a)(3)(ii) of this section in the
final regulations. State Medicaid programs may use either the model
certificate below that is designated for Medicaid programs, or the
model certificate in the proposed rules that is so designated and
includes an additional paragraph on FMLA.
BILLING CODE 4830-01-P
[[Page 78726]]
[GRAPHIC] [TIFF OMITTED] TR30DE04.007
[[Page 78727]]
[GRAPHIC] [TIFF OMITTED] TR30DE04.008
[[Page 78728]]
[GRAPHIC] [TIFF OMITTED] TR30DE04.009
[[Page 78729]]
[GRAPHIC] [TIFF OMITTED] TR30DE04.010
BILLING CODE 4830-01-C
[[Page 78730]]
Procedure for Requesting Certificates
The April 1997 interim rules require plans and health insurance
issuers to establish a procedure for individuals to request and receive
certificates of creditable coverage. The Departments have received
requests to clarify whether such procedures need to be in writing.
These final regulations clarify that the procedures need to be in
writing, helping to ensure that individuals are aware of their right to
request a certificate and how to make the request.
In addition, the Departments have become aware that some plans and
issuers believe they are not required to provide a certificate to
individuals who request one while their coverage is still in effect.
This requirement exists under the April 1997 interim rules. However,
due to these questions being raised, the final regulations more
explicitly state this requirement.
Dependent Coverage Information
Under HIPAA, plans and health insurance issuers are required to
issue certificates of creditable coverage (automatically, and upon
request) to dependents who are or were covered under a group health
plan. In response to comments, and in order to allow entities
responsible for issuing certificates adequate time to modify their data
collection systems, the Departments established a transitional rule in
the April 1997 interim rules for providing dependent coverage
information. Under this transitional rule, a group health plan or
health insurance issuer that, after having made reasonable efforts,
could not provide a certificate of creditable coverage for a dependent
could satisfy the requirements for providing a certificate to the
dependent by providing the name of the participant covered by the group
health plan or health insurance issuer and specifying that the type of
coverage described in the certificate was for dependent coverage (for
example, family coverage or employee-plus-spouse coverage). This
transitional rule was effective through June 30, 1998.
Under these final regulations, the transitional rule is no longer
in effect and dependents are entitled to receive individualized
certificates of creditable coverage under the same circumstances as
other individuals. As with the April 1997 interim rules, these final
regulations permit a single certificate of creditable coverage to be
provided with respect to both a participant and the participant's
dependents if the information is identical for each individual. In
addition, these final regulations retain the provisions of the April
1997 interim rules permitting the combining of information for
families. As a result, in situations where coverage information is not
identical for a participant and the participant's dependents, these
final regulations allow certificates for all individuals to be provided
on one form if the form provides all the required information for each
individual and separately states the information that is not identical.
Special Rules for Certain Entities
Section 2791(a)(3) of the PHS Act provides that certain entities
not otherwise subject to HIPAA's requirements are to comply with the
statutory certification of coverage requirements that apply to group
health plans, with respect to providing certificates of creditable
coverage for Medicare, Medicaid, TRICARE, and medical care programs
provided through the Indian Health Service or a tribal organization.
These rules further establish that such entities are required to comply
with the general statutory requirement to provide certificates.
However, the Departments recognize that these programs operate in a
different manner than do private employment-based group health plans,
nonfederal governmental group health plans, and health insurance
issuers. In addition, the populations served by these programs are
unique. Therefore, it may be appropriate to allow these programs to
implement the certification process in a manner that addresses these
unique characteristics and better serves the individuals covered by
these programs, including requiring different information elements (for
example, see the above model certificate of creditable coverage for use
by State Medicaid programs). HHS will coordinate with the appropriate
entities responsible for issuing these certificates and will issue
separate guidance to these entities on how they must comply with the
certification requirements.
5. Special Enrollment Periods--26 CFR 54.9801-6, 29 CFR 2590.701-6, 45
CFR 146.117
Under HIPAA, the April 1997 interim rules, and these final
regulations, a group health plan and a health insurance issuer offering
group health insurance coverage are required to provide for special
enrollment periods during which certain individuals are allowed to
enroll (without having to wait until a late enrollment opportunity and
regardless of whether the plan offers late enrollment). A special
enrollment right can arise if a person with other health coverage loses
eligibility for that coverage or employer contributions toward the
other coverage cease, or if a person becomes a dependent through
marriage, birth, adoption, or placement for adoption.
In order to qualify for special enrollment, an individual must be
otherwise eligible for coverage under the plan. Being otherwise
eligible for coverage means having met the plan's substantive
eligibility requirements (such as satisfying any waiting period, being
in an eligible job classification, or working full time), regardless of
whether the individual previously satisfied the plan's procedural
requirements for becoming enrolled (such as completing written
application materials or providing them to the plan within a specified
time frame) during any enrollment opportunity prior to special
enrollment.
The special enrollment rules have been reorganized and clarified.
As discussed below, the special enrollment rules have also been
modified in response to comments.
Loss of Eligibility for Other Coverage
A special enrollment right resulting from loss of eligibility for
other coverage is available to employees and their dependents who meet
certain requirements. As under the April 1997 interim rules, the
employee or dependent must otherwise be eligible for coverage under the
terms of the plan. When coverage was previously declined, the employee
or dependent must have been covered under another group health plan or
must have had other health insurance coverage. The plan can require
that, when coverage in the plan was previously declined, the employee
must have declared in writing that the reason was other coverage, in
which case the plan must at that time have provided notice of this
requirement and the consequences of the employee's failure to provide
the statement.
These regulations include an example that clarifies that the
initial opportunity for enrollment (generally provided when employment
begins) is not the only time when an individual with other health
coverage may decline coverage for purposes of satisfying the
prerequisites to special enrollment upon loss of other coverage. (Other
examples discussed below also illustrate this principle.) An individual
who initially did not enroll for coverage without having other health
coverage might later be eligible for special enrollment. This could
occur if, after subsequently enrolling in other coverage, the
individual had an opportunity for late
[[Page 78731]]
enrollment or special enrollment under the plan, but again chose not to
enroll.
These final regulations, like the April 1997 interim rules, contain
a list of situations when an individual loses eligibility for other
coverage. While the list is not exhaustive, it has nonetheless been
expanded in these final regulations to address situations that have
prompted frequent questions. Thus, these regulations clarify that a
loss of eligibility for coverage occurs, in the case of individual
coverage provided through an HMO, when an individual no longer resides,
lives, or works in the service area of the HMO (whether or not within
the choice of the individual) and the HMO does not provide coverage for
that reason. In the case of group coverage provided through an HMO, the
same rule applies, provided that there is no other coverage under the
plan available to the individual. For purposes of this rule, the HMO
service area is typically defined by State law. In addition, the
regulations clarify that a loss of eligibility for coverage occurs due
to the cessation of dependent status. For example, a child who ``ages
out'' of dependent coverage--who attains an age in excess of the
maximum age for coverage of a dependent child--incurs a loss of
eligibility for coverage for purposes of special enrollment.
The regulations also clarify that a loss of eligibility for
coverage occurs when a plan no longer offers any benefits to a class of
similarly situated individuals. Thus, if a plan terminated health
coverage for all part-time workers, the part-time workers incur a loss
of eligibility for coverage, even if the plan continues to provide
coverage to other employees. An example in the final regulations also
illustrates how the loss of eligibility rule applies to a plan that
terminates a benefit package option. Similarly, if an issuer providing
one of the options ceases to operate in the group market, thus
terminating one of the options offered by the plan, the individuals
formerly in the terminated option would incur a loss of eligibility for
coverage for purposes of special enrollment, unless the plan otherwise
provided a current right to enroll in alternative health coverage. In
addition, the final regulations clarify that an employee who is already
enrolled in a benefit package may enroll in another benefit package
under the plan if a dependent of that employee has a special enrollment
right in the plan because the dependent lost eligibility for other
coverage.
These regulations clarify that a loss of eligibility for coverage
is still considered to exist even if there are subsequent coverage
opportunities. As under the April 1997 interim rules, an individual
does not have to elect COBRA continuation coverage or exercise similar
continuation rights in order to preserve the right to special
enrollment. Moreover, a special enrollment right exists even if an
individual who lost coverage elects COBRA continuation coverage. In
that case, if an individual declines special enrollment, and instead
elects and exhausts COBRA continuation coverage, the individual has a
second special enrollment right upon exhausting the COBRA continuation
coverage.
In addition, as under the statute and the April 1997 interim rules,
even if there is no loss of eligibility for coverage, a special
enrollment right can result when employer contributions towards other
coverage terminate. This is the case even if an individual continues
the other coverage by paying the amount previously paid by the
employer.
Lifetime Benefit Limits
Comments asked how the special enrollment rules apply when an
individual reaches a lifetime limit on all benefits under a plan. The
regulations clarify that where an individual has a claim denied due to
the operation of a lifetime limit on all benefits, there is a loss of
eligibility for coverage for special enrollment purposes. In this
regard, an individual has a special enrollment right when a claim that
would exceed a lifetime limit on all benefits is incurred, and the
right continues at least until 30 days after the earliest date that a
claim is denied due to the operation of the lifetime limit.
Accordingly, because individuals who are keeping track of claims in
relation to a lifetime limit can request enrollment immediately (after
the claim is incurred, but before it is denied by the plan), the period
for requesting special enrollment can be longer than 30 days.
(Timeframes for providing certificates of creditable coverage and
determining when COBRA is exhausted for individuals who have reached a
lifetime limit on all benefits are set forth elsewhere in these final
regulations, under the certificate and the definition provisions,
respectively.)
Tolling of the Special Enrollment Period
Proposed rules, published elsewhere in this issue of the Federal
Register, would toll the beginning of the 30-day period for requesting
special enrollment until a certificate of creditable coverage is
provided to the person losing coverage, up to a maximum of 44 days of
tolling. This tolling rule would be in the paragraph reserved for
special enrollment procedures in these final regulations.
Dependent Special Enrollment
Comments asked for clarification of the interaction of coverage for
children under a State Children's Health Insurance Program (S-CHIP) and
special enrollment. In particular, it was asked whether a child would
have a right to special enrollment in a group health plan if the child
becomes eligible for benefits under S-CHIP and the child is otherwise
eligible for dependent coverage under the plan. This situation would
arise if a State creates a children's health program that provides
payments to a parent to cover the increased cost of enrolling a
dependent child in the parent's employer's group health. However,
without a special enrollment right, the parent might not be able to
take advantage of the program until the next late enrollment
opportunity, if the plan allows late enrollment at all. The statutory
language of HIPAA, however, only provides special enrollment if there
is loss of eligibility for other coverage, loss of employer
contributions, or addition of a new dependent to the employee's family.
Becoming eligible under a health program such as S-CHIP does not fall
under any of these categories.\7\
---------------------------------------------------------------------------
\7\ Nonetheless, in addition to the dependent special enrollment
rights under HIPAA, for plans subject to ERISA, section 609 of ERISA
imposes additional requirements on group health plans to provide
benefits to certain children, including in cases where a qualified
medical child support order applies, as well as in cases of
adoption. HIPAA does not prevent States from imposing similar
requirements on nonfederal governmental plans.
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Under these final regulations, as under the April 1997 interim
rules, the special enrollment of dependents is subject to the plan's
general eligibility requirements. For example, a plan may require an
employee to remain enrolled, or to special enroll, in order to special
enroll the employee's dependent. However, a plan's general eligibility
requirements cannot prevent the application of a special enrollment
right. For example, a plan may not deny special enrollment to an
otherwise eligible dependent merely because the individual became a
dependent of the participant after the participant's first day of
coverage under the plan.
Modification of Special Enrollment Procedures
Under proposed rules, published elsewhere in this issue of the
Federal Register, more detailed procedures are described for how plans
and issuers would have to enroll individuals requesting special
enrollment.
[[Page 78732]]
When Coverage Begins Under Special Enrollment
Where the special enrollment right results from marriage or a loss
of eligibility, coverage generally begins no later than the first day
of the first calendar month after the date the plan or issuer receives
the request for special enrollment. Where the special enrollment right
results from a birth, coverage must begin on the date of birth. In the
case of adoption or placement for adoption, coverage must begin no
later than the date of such adoption or placement for adoption.
Clarification of Special Enrollment During a Late Enrollment
Opportunity
The April 1997 interim rules provided a definition of the term
special enrollment date. The purpose of the definition and accompanying
examples was to illustrate that if an individual who qualified for
special enrollment enrolled during a coinciding late enrollment
opportunity, the individual could not be treated as a late enrollee.
The final regulations eliminate the term special enrollment date and
clarify this issue by providing that if an individual requests
enrollment while the individual is entitled to special enrollment, the
individual is a special enrollee, even if the request coincides with a
late enrollment opportunity under the plan. Thus, the individual cannot
be treated as a late enrollee.
Notice of Special Enrollment
The preamble to the April 1997 interim rules stated that a plan
must provide a description of the special enrollment rights to anyone
who declines coverage. However, the text of the April 1997 interim
rules required the notice to be provided to all eligible employees.
Even employees who enroll may need to avail themselves of their special
enrollment rights in the future, either for a spouse or other
dependent, or if they lose the present coverage. Thus, these
regulations reiterate the requirement in the April 1997 interim rules
that a plan must provide all employees (those who enroll as well as
those who decline enrollment) with a notice of special enrollment at or
before the time the employee is initially offered the opportunity to
enroll in the plan. The regulation also provides model language that
plans can use to satisfy this requirement.
Treatment of Special Enrollees
HIPAA provides that a late enrollee does not include an individual
who enrolls when first eligible or who enrolls during a special
enrollment period. These regulations further clarify that individuals
who enroll during a special enrollment period must generally be treated
the same as individuals who enroll when first eligible. That is,
relative to similarly situated individuals who enroll when first
eligible, special enrollees must be offered all the same benefit
packages, cannot be required to pay more for coverage, and cannot be
subject to a longer preexisting condition exclusion.
6. HMO Affiliation Period as an Alternative to a Preexisting Condition
Exclusion--29 CFR 2590.701-7, 45 CFR 146.119
Under HIPAA, the April 1997 interim rules, and these final
regulations, a group health plan that offers health insurance coverage
through an HMO, or an HMO that offers health insurance coverage in
connection with a group health plan, may impose an affiliation period
under certain conditions. An affiliation period is a period of time
that must expire before health insurance coverage provided by an HMO
becomes effective and during which time the HMO is not required to
provide benefits. Under these final regulations an affiliation period
can be imposed if each of the following requirements is satisfied:
(1) No preexisting condition exclusion is imposed with respect to
any coverage offered by the HMO in connection with the particular group
health plan.
(2) No premium is charged to a participant or beneficiary for the
affiliation period.
(3) The affiliation period for the HMO coverage is imposed
consistent with the requirements of the HIPAA nondiscrimination
provisions.
(4) The affiliation period does not exceed 2 months (or 3 months
for a late enrollee).
(5) The affiliation period begins on the enrollment date (or, in
the case of a late enrollee, the affiliation period begins on the day
that would be the first day of coverage, but for the affiliation
period).
(6) The affiliation period for enrollment in the HMO under a plan
runs concurrently with any waiting period.
The requirements related to HMO affiliation periods contained in
these final regulations clarify that a group health plan offering
health insurance through an HMO or an HMO that offers health insurance
coverage in connection with a group health plan may impose different
affiliation periods, so long as the affiliation period complies with
the requirements of the HIPAA nondiscrimination provisions. To
illustrate this clarification, these final regulations contain an
example where a group health plan that provides benefits through an HMO
imposes an affiliation period with respect to salaried employees but
does not impose an affiliation period with respect to hourly employees.
This example illustrates that it is permissible to impose an
affiliation period on salaried employees but not hourly employees, so
long as treating these two groups differently complies with the
requirements of the HIPAA nondiscrimination provisions.
The April 1997 interim rules and these final regulations specify
that the affiliation period begins on the enrollment date (which is the
first day of coverage under the plan, or if there is a waiting period
for coverage under the plan, the first day of the waiting period), not
when coverage under a particular benefit package option begins.
Accordingly, an example in these final regulations illustrates that if
a group health plan offers multiple benefit package options
simultaneously, the HMO cannot impose an affiliation period on a plan
participant who later switches to the HMO benefit package option,
assuming the period of time that has elapsed since the enrollment date
(during which the participant was covered under the first benefit
package option) exceeds the duration of the HMO affiliation period.
Moreover, these regulations clarify that, in the case of a late
enrollee, the affiliation period begins on the day that would be the
first day of coverage, but for the affiliation period.
The April 1997 interim rules and these final regulations allow an
HMO to use alternative methods in lieu of an affiliation period to
address adverse selection, as approved by the State insurance
commissioner or other official designated to regulate HMOs. Because an
affiliation period may be imposed only if no preexisting condition
exclusion is imposed, an alternative to an affiliation period may not
encompass an arrangement that is in the nature of a preexisting
condition exclusion.
7. Interaction With the Family and Medical Leave Act--26 CFR 54.9801-7,
29 CFR 701-8, 45 CFR 146.120
This section has been reserved. For proposed rules on the
interaction with the Family and Medical Leave Act, see the Departments'
notice of proposed rulemaking, published elsewhere in this issue of the
Federal Register.
8. Special Rules; Excepted Plans and Excepted Benefits--26 CFR 54.9831-
1, 29 2590.732, 45 CFR 146.145
This section of the final regulations contains special rules that
apply for
[[Page 78733]]
Chapter 100 of the Code, Part 7 of Subtitle B of Title I of ERISA (Part
7 of ERISA), and Title XXVII of the PHS Act. For ease in applying these
rules, the definition of group health plan has been moved from the
definitions section to this section (and the reference to employees in
that definition has been modified to clarify that the term includes
both current and former employees). New rules have been added for
defining limited scope dental and vision benefits and for determining
the extent to which benefits provided under a health flexible spending
arrangement are excepted benefits. Special rules for partnerships have
also been clarified.
Determination of the Number of Plans
A paragraph has been reserved in the final regulation for
determining the number of plans an employer or employee organization
maintains. For proposed rules on this topic, see the Departments'
notice of proposed rulemaking, published elsewhere in this issue of the
Federal Register.
Coverage Provided by an Employer Through Two or More Individual
Policies
If an employer provides coverage to its employees through two or
more individual policies, the coverage may be considered coverage
offered in connection with a group health plan and, therefore, subject
to the group market provisions under HIPAA. A determination of whether
there is a group health plan depends on the particular facts and
circumstances surrounding the extent of the employer's involvement. For
example, one significant factor in establishing whether there is a
group health plan is the extent to which the employer makes
contributions to health insurance premiums. The fact that health
insurance coverage is provided through a contract regulated under State
law as individual health insurance coverage does not necessarily
prevent the coverage from being treated for HIPAA purposes as coverage
sold in the group market. Similarly, the policy that provides the
coverage does not have to be considered a ``group'' policy under State
law in order for the group market requirements to apply. Further, the
mere fact that an employer forwards employee payroll deductions to a
health insurance issuer will not, alone, cause the coverage to become
group health plan coverage. However, the employer need not be a party
to the insurance policy, or arrange or pay for it directly, in order
for its coverage to be considered group health plan coverage. For
example, if an employer's actions appear to endorse one or more
policies offered by a health insurance issuer (or issuers), the
coverage might be considered group health plan coverage.
General Exception for Certain Small Group Health Plans
Under HIPAA, the April 1997 interim rules, and these final
regulations, the group market requirements do not apply to a group
health plan or to group health insurance coverage offered in connection
with a group health plan for any plan year if, on the first day of the
plan year, the plan has fewer than two participants who are current
employees. As noted in the preamble to the April 1997 interim rules, a
State may apply some or all of the group market provisions in the PHS
Act to health insurance issuers in connection with group health plans
with fewer than two participants who are current employees on the first
day of the plan year. In this case, to the extent the State applies its
group market provisions to such insurance, the insurance would not be
subject to the individual market requirements.
In the event a group health plan has two or more participants who
are current employees on the first day of the plan year but the number
of participants who are current employees drops below two during the
plan year, under these final regulations the group market requirements
continue to apply to the group health plan for the duration of the plan
year.
To the extent a health insurance issuer offers group health
insurance that is subject to HIPAA's group health insurance
requirements, HIPAA generally prohibits the issuer from terminating or
failing to offer to renew the insurance (see 45 CFR 146.152). With
respect to very small employers, whether group health insurance is
subject to the requirements of 45 CFR 146.152 is generally determined
by whether the group health plan has two or more participants who are
current employees on the first day of the plan year. If so, the issuer
generally must provide such coverage throughout the plan year, and is
prohibited from terminating coverage in the midst of that plan year
merely because the number of current-employee participants drops below
two.\8\ However, an issuer is permitted to terminate an employer's
coverage in the midst of a plan year if the employer fails to satisfy
any valid plan participation requirements in the midst of that plan
year (see 45 CFR 146.152(a)(3)), including instances where such failure
causes the number of current-employee participants to drop below two.
---------------------------------------------------------------------------
\8\ See CMS Program Memorandum No. 99-03, Group Size Issues
Under Title XXVII of the Public Health Service Act, September 1999.
---------------------------------------------------------------------------
Excepted Benefits
Under HIPAA, the April 1997 interim rules, and these final
regulations, certain benefits are excepted from HIPAA in all
circumstances, including coverage only for accident (including
accidental death and dismemberment); disability income coverage;
liability insurance, including general liability insurance and
automotive liability insurance; coverage issued as a supplement to
liability insurance; workers' compensation or similar coverage;
automobile medical payment insurance; credit-only insurance (for
example, mortgage insurance); and coverage for on-site medical clinics.
Limited Excepted Benefits
Under HIPAA, the April 1997 interim rules, and these final
regulations, limited scope dental benefits, limited scope vision
benefits, and long-term care benefits\9\ are excepted if they are
provided under a separate policy, certificate, or contract of
insurance, or are otherwise not an integral part of a plan that is
subject to these regulations. Benefits are not an integral part of such
a plan if participants have the right not to elect coverage for the
benefits, and if participants who elect such coverage must pay an
additional premium or contribution for it. These regulations clarify
that whether limited scope dental benefits, limited scope vision
benefits, or long-term care benefits are provided through a plan that
is subject to these regulations, or through a separate plan, is
irrelevant to determining whether such benefits are an integral part of
a plan that is subject to these regulations. Thus, if participants can
decline coverage for the limited-scope benefits, and those electing
such coverage must pay an additional premium or contribution, the
limited scope benefits could be considered not to be an integral part
of a plan that is subject to these regulations, even if such benefits
are not provided through that plan.
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\9\ Long term care benefits are defined as benefits that are
either subject to State long-term care insurance laws; that meet the
qualifications of section 7702B(c)(1) or 7702B0(b) of the Internal
Revenue Code; or are based on cognitive impairment or loss of
functional capacity that is expected to be chronic.
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Limited Scope Vision and Dental Benefits
These regulations define limited scope dental benefits as benefits
[[Page 78734]]
substantially all of which are for treatment of the mouth (including
any organ or structure within the mouth). These regulations also define
limited scope vision benefits as benefits substantially all of which
are for treatment of the eye. Thus, if benefits meet the definition of
limited scope dental benefits or limited scope vision benefits, they
will be excepted benefits if they satisfy the requirements set forth in
these regulations.
These definitions were added in response to questions raised in
comments about the prior guidance. The April 1997 interim rules did not
define these terms. The preamble to the April 1997 interim rules
suggested that the term limited scope dental benefits typically does
not include medical services, such as those procedures associated with
oral cancer or with a mouth injury that results in broken, displaced,
or lost teeth. Similarly, the preamble to the April 1997 interim rules
suggested that the term limited scope vision benefits does not include
benefits for such ophthalmological services as treatment of an eye
disease (such as glaucoma or a bacterial eye infection) or an eye
injury. Comments indicated that typically most independent dental and
vision coverages include benefits for these types of medical services.
Accordingly, these regulations include definitions of limited scope
dental benefits and limited scope vision benefits that reflect this
market reality.
Health FSAs
Some comments asked about the extent to which health flexible
spending arrangements (FSAs) are subject to these regulations. A health
FSA generally is a benefit program that provides employees with
coverage under which specified, incurred expenses may be reimbursed
(subject to reimbursement maximums and any other reasonable conditions)
and under which the maximum amount of reimbursement that is reasonably
available to a participant for a period of coverage is not
substantially in excess of the total premium (including both employee-
paid and employer-paid portions of the premium) for the participant's
coverage. Coverage and reimbursements provided to an individual under a
group health plan that is a health FSA and that conforms to the
generally applicable rules for accident or health plans qualify for the
same tax-favored treatment that generally is extended to coverage and
reimbursements under employer-provided accident or health plans. Health
FSA reimbursements typically provide coverage for medical care expenses
not otherwise covered by the employer's primary group health plan. A
health FSA is permitted to operate under a cafeteria plan described in
section 125 of the Code. Pursuant to the rules of section 125, an
employee can elect to reduce the employee's salary in order to pay for
health FSA coverage without the employee having to include that portion
of the salary in gross income. Commonly, the maximum benefit payable
under a health FSA for any year is equal to the amount of the
employee's salary reduction election for the year, plus any additional
employer contribution for the year.
The April 1997 interim rules did not address the extent to which
health FSAs qualify as excepted benefits. On December 29, 1997, a
clarification to the April 1997 interim rules was published that
specified the circumstances under which a health FSA qualifies as
excepted benefits. (62 FR 67688) That clarification stated that
benefits under a health FSA are treated as excepted benefits if the FSA
meets certain requirements. Specifically, FSA benefits are treated as
excepted benefits if the maximum benefit payable for the employee under
the FSA for the year does not exceed two times the employee's salary
reduction election under the FSA for the year (or, if greater, the
amount of the employee's salary reduction election under the FSA for
the year, plus $500). In addition, the employee must have other
coverage available under a group health plan of the employer for the
year, and that other coverage cannot be limited to benefits that are
excepted benefits.
Based on section 9832(c)(2)(C) of the Code, section 733(c)(2)(C) of
ERISA, and section 2791(c)(2)(C) of the PHS Act, these regulations
adopt the December 29, 1997 guidance with some additional
clarifications. Specifically, these regulations clarify that to be
considered excepted benefits, a health FSA must meet the definition of
a health FSA in section 106(c)(2) of the Code. Also, these regulations
clarify that other group health plan coverage not limited to excepted
benefits must be made available for the year to the class of
participants by reason of their employment. Similarly, the maximum
amount payable to any participant in the class for the year is the
amount to consider when determining whether the maximum amount payable
under the FSA for the year complies with the limit specified in the
previous paragraph. Additionally, these regulations clarify that an
employer credit under a health FSA that an employee can elect to
receive as taxable income is considered an employee salary reduction
election. However, if the employee cannot receive the employer credit
as taxable income (that is, the credit is lost unless the employee uses
the amount for nontaxable benefits under a cafeteria plan), then the
amount is not considered an employee salary reduction election.
Application to HSAs and HDHPs
Section 1201 of the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003, Public Law 108-173, added section 223 to the
Internal Revenue Code to permit individuals to establish Health Savings
Accounts (HSAs). HSAs are established to receive tax-favored
contributions and amounts in an HSA may be used to pay or reimburse
qualified medical expenses. Questions have arisen concerning the
application of HIPAA to HSAs.
In order to establish and contribute to an HSA, an individual must
be covered by a High Deductible Health Plan (HDHP). An HDHP is a health
plan that satisfies certain requirements with respect to deductibles
and out-of-pocket expenses. An HDHP may be a group health plan
sponsored by an employer or individual health insurance coverage
purchased in the individual market. There is no provision in the HIPAA
rules that excludes an HDHP, by virtue of qualifying as an HDHP, from
the respective HIPAA requirements for group health plans or individual
health insurance coverage. Generally, employer-sponsored HDHPs are
employee welfare benefit plans. See Department of Labor Field
Assistance Bulletin 2004-01 (FAB 2004-01), issued on April 7, 2004.
Because an employer-sponsored HDHP provides medical care, it is
generally subject to the portability requirements of HIPAA and the
applicable regulations.
FAB 2004-01 concluded that HSAs, in contrast to HDHPs, generally
will not constitute employee welfare benefit plans. See Department of
Labor Field Assistance Bulletin 2004-01 (FAB 2004-01), issued on April
7, 2004. Because HSAs are generally not employee welfare benefit plans,
the HIPAA portability requirements under ERISA or the PHS Act generally
will not apply.
Moreover, the HIPAA portability requirements generally are not
relevant for purposes of HSAs. Due to the rules imposed by the Internal
Revenue Code with respect to HSAs, employers or HSA trustees do not
have discretion with respect to the coverage provided by an HSA, both
with respect to what expenses qualify for reimbursement as well as
which individuals' expenses are eligible. For example, expenses
reimbursable by an HSA cannot
[[Page 78735]]
generally be restricted by the employer or HSA trustee. Under the
statute and administrative guidance, any expense incurred after an HSA
is established is eligible for reimbursement, without restriction by an
employer contributing to the HSA or trustee of the HSA. Thus, as a
practical matter, whether or not an expense relates to a preexisting
condition cannot determine the reimbursement. As such HSAs by design
cannot impose a preexisting condition exclusion. Similarly, due to
comparability rules requiring uniform contributions to HSAs by
employers, employers and trustees generally cannot use differing
amounts of contributions to impose a preexisting condition exclusion.
The eligibility for tax-free reimbursement from an HSA is also
determined by statute; namely, the qualified medical expenses of the
HSA owner and the HSA owner's dependents incurred after the HSA is
established may be reimbursed on a tax-free basis by the HSA. Special
enrollment rules for dependent children or spouses are not relevant
because once an HSA is established they are eligible for tax-free
reimbursements immediately. With respect to special enrollment upon
loss of coverage, the rules for employer contributions generally
require that all employees who are eligible for HSA contributions and
participating in the employer's HDHP receive comparable HSA
contributions. Thus, the combination of the comparability rules and the
application of the special enrollment rules to the HDHP will generally
ensure compliance with respect to employer HSA contributions because
once an employee is enrolled in an employer-provided HDHP due to the
special enrollment rules, the employer must make comparable
contributions to the employee's HSA.
Indemnity Insurance
Under HIPAA, the April 1997 interim rules, and these final
regulations, hospital indemnity and other fixed-dollar indemnity
insurance are excepted benefits if the benefits are provided under a
separate policy, certificate, or contract of insurance; if there is no
coordination of benefits between the provision of the benefits and an
exclusion of benefits under any group health plan maintained by the
same plan sponsor; and if the benefits are paid with respect to an
event regardless of whether benefits are provided with respect to the
event under any group health plan maintained by the same plan sponsor.
These regulations clarify that, for hospital indemnity or other fixed-
dollar indemnity insurance to qualify as excepted benefits, such
insurance must pay a fixed dollar amount per day (or other period),
regardless of the amount of expenses incurred. An example clarifies
that if a policy provides benefits only for hospital stays at a fixed
percentage of hospital expenses up to a maximum amount per day, the
benefits are not excepted benefits. This is the result even if, in
practice, the policy pays the maximum for every day of hospitalization.
Supplemental Insurance
Under HIPAA, the April 1997 interim rules, and these final
regulations, Medicare supplemental health insurance (as defined under
section 1882(g)(1) of the Social Security Act); coverage supplemental
to TRICARE; and similar coverage that is supplemental to a group health
plan are excepted benefits if they are provided under a separate
policy, certificate, or contract of insurance. These regulations
clarify that, for coverage supplemental to a group health plan to
qualify as excepted benefits, the coverage must be specifically
designed to fill gaps in primary coverage, such as coinsurance or
deductibles. Coverage that becomes secondary or supplemental only under
a coordination-of-benefits provision in the insurance contract or plan
documents does not qualify as excepted supplemental benefits.
Treatment of Partnerships
Any plan, fund, or program that is established or maintained by a
partnership and that provides medical care to present or former
partners or their dependents, and that otherwise would not be an
employee welfare benefit plan, is considered an employee welfare
benefit plan that is a group health plan under Part 7 of ERISA and
Title XXVII of the PHS Act.\10\ As such, the partnership is considered
the employer with respect to any partner. Participants in the plan
include individuals who are partners of the partnership. Additionally,
with respect to group health plans maintained by self-employed
individuals (under which one or more employees are participants), the
self-employed individual is considered a participant if this individual
is or may become eligible to receive a benefit under the plan or if the
individual's beneficiaries may be so eligible. These regulations
clarify that, for purposes of Part 7 of ERISA and Title XXVII of PHS
Act, a partner must be a bona fide partner in order to be considered an
employee, and the partnership is considered the employer of a partner
only if the partner is a bona fide partner. These final regulations
also clarify that whether an individual is a bona fide partner is
determined based on all the relevant facts and circumstances, including
whether the individual performs services on behalf of the partnership.
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\10\ Such a plan, fund, or program is also considered a group
health plan under section 5000(b)(1) and Chapter 100 of the Code.
---------------------------------------------------------------------------
Counting the Average Number of Employees
A paragraph has been reserved in the final rules for determining
the average number of employees employed by an employer for a year. For
proposed rules on this topic, see the Departments' notice of proposed
rulemaking, published elsewhere in this issue of the Federal Register.
C. Economic Impact and Paperwork Burden
Summary--Department of Labor and Department of Health and Human
Services
HIPAA's group market portability provisions, which include
limitations on the scope and application of preexisting condition
exclusions, and special enrollment rights, provide a minimum standard
of protection designed to increase access to health coverage. The
Departments crafted these final regulations to secure these
protections, consistent with the intent of Congress, and to do so in a
manner that is economically efficient.
The primary economic effects of HIPAA's portability provisions
ensue directly from the statute. These regulations, by clarifying and
securing HIPAA's statutory protections, will delineate and possibly
expand HIPAA's effects at the margin.
Effects of the Statute
HIPAA's statutory group market portability provisions extend
coverage to certain individuals and preexisting conditions not
otherwise covered. This extension of coverage entails both benefits and
costs. Individuals enjoying expanded coverage will realize benefits. In
some instances these individuals will gain coverage for services they
otherwise would have purchased out-of-pocket. In other instances the
extension of coverage will induce individuals to consume more (or
different) health care services, which in some cases may improve health
outcomes. The dollar value of the extended coverage is estimated to be
$515 million annually. Potential additional benefits from improved
health outcomes are difficult
[[Page 78736]]
to quantify (and the Departments have not attempted to do so), but may
be large in aggregate, and will be large for at least some individuals
whose health outcomes may be substantially improved. Another indirect
benefit of HIPAA's portability provisions is a reduction in so-called
``job lock''--a phenomenon in which individuals keep jobs they would
prefer to leave to avoid losing coverage for preexisting conditions. If
workers move into more productive jobs, the overall economy will
benefit.
It should be noted that the benefits of HIPAA's portability
provisions in any given year will be concentrated in a relatively small
population that gains coverage under HIPAA for needed care that would
otherwise not be covered. The number that might so benefit has been
estimated at 100,000 individuals.
The direct costs of HIPAA's portability provisions generally
include the cost of extending coverage to additional services, as well
as certain attendant administrative costs. The cost of extended
coverage is estimated at $515 million annually. The major
administrative costs include the cost of providing certificates of
creditable coverage, and possibly the cost of carrying out special
enrollments and offsets of preexisting condition exclusion periods. The
Departments did not attempt to fully estimate the administrative costs
of the HIPAA statute but in crafting this regulation did attempt to
constrain these costs.
The Departments believe that the cost of HIPAA is borne by covered
workers. Cost can be shifted to workers through increases in employee
premium shares or reductions (or smaller increases) in pay or other
components of compensation, or by increases in deductibles or other
cost sharing or other reductions in the richness of health benefits.
Whereas the benefits of HIPAA are concentrated in a relatively small
population, the costs are distributed broadly across plans and
enrollees.
The Departments have considered whether the costs imposed by
HIPAA's statutory portability provisions have had any major indirect
negative effects, and concluded that such effects are possible but
probably small.
Any mandate to increase the richness or availability of health
insurance adds to the cost of insurance. It is possible that some small
number of employers and employees already at the brink of affordability
would drop coverage in response to the implementation of HIPAA. The
Departments also note that the estimated $515 million cost associated
with extensions of coverage under HIPAA amounts to a small fraction of
one percent of total expenditures by private group health plans. This
suggests that the cost of HIPAA is a small, possibly negligible, factor
in most employers' decisions to offer health coverage and workers'
decisions to enroll. The Departments believe that the benefits of
HIPAA's statutory group market portability provisions justify their
cost. The Departments' full assessment of the costs and benefits of
HIPAA's statutory provisions and their basis for that assessment is
detailed later in the preamble.
Effects of the Final Regulations
By clarifying and securing HIPAA's statutory portability
protections, these regulations will help ensure that HIPAA rights are
fully realized. The result is likely to be a small increase at the
margin in the direct and indirect economic effects of HIPAA's statutory
portability provisions. The Departments believe that the regulation's
benefits will justify its costs.
Additional economic benefits derive from the regulations'
clarifications of HIPAA's portability requirements. By clarifying
employees' rights and plan sponsors' obligations under HIPAA's
portability provisions, the regulations will reduce uncertainty over
health benefits, thereby fostering labor market efficiency and the
establishment and continuation of group health plans by employers.
Many provisions of the final regulations closely resemble
provisions included in the interim final regulations that the final
regulations supplant. This regulatory action, however, adds or amends
both certain provisions directed at the scope of HIPAA's portability
protections and certain provisions establishing administrative
requirements intended to safeguard those protections.
Scope of Protections
These final regulations are intended to secure and implement
HIPAA's group market portability provisions under certain special
circumstances. The final regulations therefore contain a number of
provisions intended to clearly delimit the scope of HIPAA's portability
protections. Most of these provisions closely resemble and will have
the same effect as provisions of the interim final regulations. Others,
however, clarify or expand at the margin the range of situations to
which HIPAA's portability protections apply or in which a loss of
eligibility may trigger special enrollment rights. These include the
requirement that health coverage under foreign government programs be
treated as creditable coverage for purposes of limiting the application
of preexisting condition exclusions; the extension of special
enrollment rights to individuals who lose eligibility for coverage in
connection with the application of lifetime benefit limits, movement
out of an HMO's service area, or the termination of a health coverage
option previously offered under a group health plan; and the
establishment of a special enrollment right for a participant to change
among available coverage options under a group health plan when adding
one or more dependents in connection with marriage, adoption, or
placement for adoption. Each of these provisions is expected to result
in a small increase in the economic effects of HIPAA's statutory
portability protections. The Departments have no basis to quantify
these small increases. The potential size of affected sub populations
is explored later in the preamble.
Administrative Requirements
In order to secure and implement HIPAA's group market special
enrollment and portability provisions, both the HIPAA statute and these
final regulations establish certain administrative requirements.
As noted above, the HIPAA statute generally requires plans and
issuers to provide certifications of prior coverage to individuals
leaving coverage. These regulations additionally require plans and
issuers to notify individuals of their special enrollments rights, any
preexisting condition exclusion provisions, and the applicability of
such exclusions where individuals provide evidence of prior coverage
that is of insufficient duration to fully offset exclusion periods.
Plans will incur cost to comply with these administrative requirements.
The Departments estimate the administrative cost to prepare and
distribute certifications and notices to be $97 million per year.
Nearly all of this, or $96 million, is attributable to the preparation
and distribution of certifications as required under HIPAA's statutory
provisions. These final regulations include numerous special provisions
that serve to reduce plans' cost of providing certifications. A more
strict interpretation of the statute would require plans to send an
individual certificate to each affected enrollee. Such strict
interpretation would result in plans sending 80.1 million certificates
annually at cost of $157.6 million, which is $61.6 million more than
the burden imposed by the final regulations.
[[Page 78737]]
Generally all of the major administrative requirements included in
the final regulations were also included in the interim final
regulations. The final regulations make minor additions to two
requirements, however. They require plans to include educational
statements in certificates of creditable coverage and to maintain in
writing their procedures for requesting certificates. The cost of these
additional requirements is expected to be small, and was not estimated
separately from the overall cost of providing certificates.
Other changes included in these final regulations are likely to
slightly reduce plans' cost to provide certain HIPAA-required notices.
Included with the final regulation is new sample language for general
and specific notices of preexisting condition exclusions, which may
serve to reduce some plans' costs of providing these notices, and
revised sample language for special enrollment rights notices. The
final regulations also clarify the narrow scope of the requirement to
notify certain affected participants of the specific application of
preexisting condition exclusions. The Departments did not estimate the
impact of these provisions separately from the overall cost of
providing general and specific notices of preexisting condition
exclusions and notices of special enrollment rights.
The Departments' full assessment of the costs and benefits of this
regulation and their basis for that assessment is detailed later in
this preamble.
Executive Order 12866--Department of Labor and Department of Health and
Human Services
Under Executive Order 12866 (58 FR 551735, Oct. 4, 1993), the
Departments must determine whether a regulatory action is
``significant'' and therefore subject to the requirements of the
Executive Order and subject to review by the Office of Management and
Budget (OMB). Under section 3(f), the order defines a ``significant
regulatory action'' as an action that is likely to result in a rule:
(1) Having an annual effect on the economy of $100 million or more, or
adversely and materially affecting a sector of the economy,
productivity, competition, jobs, the environment, public health or
safety, or State, local or tribal governments or communities (also
referred to as ``economically significant''); (2) creating serious
inconsistency or otherwise interfering with an action taken or planned
by another agency; (3) materially altering the budgetary impacts of
entitlement grants, user fees, or loan programs or the rights and
obligations of recipients thereof; or (4) raising novel legal or policy
issues arising out of legal mandates, the President's priorities, or
the principles set forth in the Executive Order.
Pursuant to the terms of the Executive Order, this action is
``economically significant'' and subject to OMB review under Section
3(f) of the Executive Order. Consistent with the Executive Order, the
Departments have assessed the costs and benefits of this action. The
Departments' assessment, and the analysis underlying that assessment,
is detailed below. The Departments performed a comprehensive, unified
analysis to estimate the costs and benefits attributable to the
regulations for purposes of compliance with Executive Order 12866, the
Regulatory Flexibility Act, and the Paperwork Reduction Act.
Statement of Need for Action
These final regulations are needed to clarify and interpret the
HIPAA portability provisions (increased portability through limitation
on preexisting condition exclusions) under Section 701 of the Employee
Retirement Income Security Act of 1974 (ERISA), Section 2701 of the
Public Health Service Act, and Section 9801 of the Internal Revenue
Code of 1986. The provisions are needed to improve the availability and
portability of health coverage by limiting preexisting condition
exclusions and their use, and requiring that group health plans and
group health insurance issuers allow individuals to enroll under
certain circumstances (special enrollment). Additional guidance was
required to clarify certain definitions, such as the definition of
creditable coverage; to clarify the method of determining the proper
length of a preexisting condition exclusion period for an individual;
to describe the circumstances under which an individual must be allowed
a special enrollment opportunity; and to describe notices that group
health plans and group health insurance issuers must provide to
individuals.
Economic Effects
The Departments believe that this regulation's benefits will
justify its costs. This belief is grounded in the assessment of costs
and benefit that is summarized earlier in the preamble and detailed
below.
Regulatory Flexibility Act--Department of Labor and Department of
Health and Human Services
The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) imposes
certain requirements with respect to Federal rules that are subject to
the notice and comment requirements of section 553(b) of the
Administrative Procedure Act (5 U.S.C. 551 et seq.) that are likely to
have a significant economic impact on a substantial number of small
entities. Unless an agency certifies that a rule will not have a
significant economic impact on a substantial number of small entities,
section 604 of the RFA requires the agency to present a final
regulatory flexibility analysis at the time of the publication of the
notice of final rulemaking describing the impact of the rule on small
entities. Small entities include small businesses, organizations, and
governmental jurisdictions.
Because these final rules are being issued without prior notices of
proposed rulemaking, the RFA does not apply, and the Departments are
not required to either certify that the rule will not have a
significant impact on a substantial number of small entities or conduct
a regulatory flexibility analysis. The Departments nonetheless crafted
these regulations in careful consideration of their effects on small
entities.
For purposes of this discussion, the Departments consider a small
entity to be an employee benefit plan with fewer than 100 participants.
The basis for this definition is found in section 104(a)(2) of ERISA,
which permits the Secretary of Labor to prescribe simplified annual
reports for pension plans which cover fewer than 100 participants.
Under section 104(a)(3), the Secretary may also provide for simplified
annual reporting and disclosure if the statutory requirements of part 1
of Title I of ERISA would otherwise be inappropriate for welfare
benefit plans. Pursuant to the authority of section 104(a)(3), the
Department of Labor has previously issued at 29 CFR 2520.104-20,
2520.104-21, 2520.104-41, 2520.104-46 and 2520.104b-10, certain
simplified reporting provisions and limited exemptions from reporting
and disclosure requirements for small plans, including unfunded or
insured welfare plans covering fewer than 100 participants and which
satisfy certain other requirements.
Further, while some small plans are maintained by large employers,
most are maintained by small employers. Both small and large plans may
enlist small third party service providers to perform administrative
functions, but it is generally understood that third party service
providers transfer their costs to their plan clients in the form of
fees. Thus, the Departments believe that assessing the impact of this
rule on small plans is an appropriate substitute for evaluating the
effect on small entities. The definition of small entity
[[Page 78738]]
considered appropriate for this purpose differs, however, from a
definition of small business based on size standards promulgated by the
Small Business Administration (SBA) (13 CFR 121.201) pursuant to the
Small Business Act (5 U.S.C. 631 et seq.). The Department of Labor
solicited comments on the use of this standard for evaluating the
effects of the interim final on small entities. No comments were
received with respect to the standard.
The Departments believe that the benefits of this regulation will
justify its costs. This belief is grounded in the assessment of costs
and benefit that is summarized earlier in the preamble and detailed
below in the ``Basis for Assessment of Economic Impact'' section. The
direct financial value of coverage extensions pursuant to HIPAA's
portability provisions are estimated to be approximately $180 million
for small plans, or a small fraction of one percent of total small plan
expenditures.\11\
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\11\ Computer runs using Medical Expenditure Survey Household
Component (MEPS-HC) and the Robert Wood Johnson Employer Healthy
Benefits Survey determined that the share of covered private-sector
job leavers at small firms average 35 percent of all covered private
sector job leavers. From this, we inferred that the financial burden
borne by small plans is approximately 35 percent of the total
expenditures by private-sector group health plans.
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In order to secure and implement HIPAA's portability provisions,
the HIPAA statute and interim final regulations established certain
administrative requirements, including requirements to provide
certifications of creditable coverage and notices of special enrollment
rights and preexisting condition exclusions. The Departments estimate
the cost for small plans to prepare and distribute certifications and
notices to be $13 million per year.\12\ These costs will initially be
borne by issuers who supply small group insurance products and by
third-party administrators who provide services to small insured plans.
These two types of entities will spread the costs across a much larger
pool of small plans who will in turn transfer cost broadly to plan
enrollees.
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\12\ As noted above, the total cost for certificates and notices
is estimated to be $97 million. We estimate that 13 percent of
individuals receiving certificates and notices receive them from
small group health plans, and on that basis estimates that 13% of
the total cost falls on such plans. As noted below, we estimate that
out of a total of 54 million individuals who leave coverage under
group health plans, individual health insurance policies or public
programs, 20 million, or 44 percent, are leaving private-sector
group plans. Assuming that the proportion of these that are leaving
small plans is equal to the proportion of covered, private-sector
job leavers who leave small firms (estimated to be 35 percent, as
noted above), 13 percent of those leaving any type of coverage are
leaving coverage under small group plans.
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Special Analyses--Department of the Treasury
Notwithstanding the determinations of the Departments of Labor and
of Health and Human Services, for purposes of the Department of the
Treasury it has been determined that this Treasury decision is not a
significant regulatory action. Pursuant to sections 603(a) and 605(b)
of the Regulatory Flexibility Act, it is hereby certified that the
collections of information referenced in this Treasury decision (see
Sec. Sec. 54.9801-3, 54.9801-4, 54.9801-5, and 54.9801-6) will not
have a significant economic impact on a substantial number of small
entities. Although a substantial number of small entities will be
subject to the collection of information requirements in these
regulations, the requirements will not have a significant economic
impact on these entities. The average time required to complete a
certification required under these regulations is estimated to be 4 to
5 minutes for all employers. This average is based on the assumption
that most employers will automate the certification process. The
paperwork requirements other than certifications that are contained in
the regulations are estimated to impose less than 2% of the burden
imposed by the certifications. Many small employers that maintain group
health plans have their plans administered by an insurance company or
third party administrators (TPAs). Most insurers and TPAs are expected
to automate the certification process and therefore their average time
to produce a certificate should be similar to the 4 to 5 minute average
estimated for all employers. However, even for small employers that do
not automate the certification process, the collection of information
requirements in the regulation will not have a significant impact. Even
if it is conservatively assumed that their average time to produce a
certificate is 3 times as long as the highest estimate for all
employers (i.e., 15 minutes per certificate) and that all of their
employees are covered by their group health plan and that half of the
employees receive a certificate each year, the average burden per
employee is less than 8 minutes per year. This can be rounded up to 8
minutes to more than account for the additional burden imposed by the
other paperwork requirements of the final regulations. Thus, for
example, for an employer with 10 employees, the annual burden would be
not more than 1 hour and 20 minutes per year. At an estimated cost of
$18 per hour, this would result in a cost of not more than $24 per year
for the employer, which is not a significant economic impact. Because
the collection of information requirements of this Treasury decision
will not have a significant economic impact on a substantial number of
small entities, a Regulatory Flexibility Analysis under the Regulatory
Flexibility Act (5 U.S.C. chapter 6) is not required. Pursuant to
section 7805(f) of the Code, the notice of proposed rulemaking
preceding these regulations was submitted to the Small Business
Administration for comment on its impact on small business.
Paperwork Reduction Act
Department of Labor
These final regulations include three separate collections of
information as that term is defined in the Paperwork Reduction Act of
1995 (PRA 95), 44 U.S.C. 3502(3): the Notice of Enrollment Rights,
Notice of Preexisting Condition Exclusion, and Certificate of
Creditable Coverage. Each of these disclosures is currently approved by
the Office of Management and Budget (OMB) through October 31, 2006 in
accordance with PRA 95 under control numbers 1210-0101, 1210-0102, and
1210-0103.
Department of the Treasury
These final regulations include a collection of information as that
term is defined in PRA 95: the Notice of Enrollment Rights, Notice of
Preexisting Condition Exclusion, and Certificate of Creditable
Coverage. Each of these disclosures is currently approved by OMB under
control number 1545-1537.
An agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information unless it displays a valid
control number assigned by the Office of Management and Budget.
Books or records relating to a collection of information must be
retained as long as their contents may become material in the
administration of any internal revenue law. Generally, tax returns and
tax return information are confidential, as required by 26 U.S.C. 6103.
Department of Health and Human Services
These final regulations include three separate collections of
information as that term is defined in PRA 95: the Notice of Enrollment
Rights, Notice of Preexisting Condition Exclusion, and Certificate of
Creditable Coverage. Each of these disclosures is currently approved by
OMB through June 30, 2006 in accordance with PRA 95 under control
number 0938-0702.
[[Page 78739]]
Small Business Regulatory Enforcement Fairness Act
This final rule is subject to the provisions of the Small Business
Regulatory Enforcement Fairness Act of 1996 (5 U.S.C. 801 et seq.) and
is being transmitted to Congress and the Comptroller General for
review. The final rule, is a ``major rule,'' as that term is defined in
5 U.S.C. 804, because it may result in (1) an annual effect on the
economy of $100 million or more; (2) a major increase in costs or
prices for consumers, individual industries, or federal, State or local
government agencies, or geographic regions; or (3) significant adverse
effects on competition, employment, investment, productivity,
innovation, or on the ability of United States-based enterprises to
compete with foreign-based enterprises in domestic or export markets.
Unfunded Mandates Reform Act
Section 202 of the Unfunded Mandates Reform Act of 1995 requires
that agencies assess anticipated costs and benefits before issuing any
rule that may result in an expenditure in any 1 year by State, local,
or tribal governments, in the aggregate, or by the private sector, of
$100 million. These final regulations have no such mandated
consequential effect on State, local, or tribal governments, or on the
private sector.
Federalism Statement Under Executive Order 13132--Department of Labor
and Department of Health and Human Services
Executive Order 13132 outlines fundamental principles of
federalism. It requires adherence to specific criteria by federal
agencies in formulating and implementing policies that have
``substantial direct effects'' on the States, the relationship between
the national government and States, or on the distribution of power and
responsibilities among the various levels of government. Federal
agencies promulgating regulations that have these federalism
implications must consult with State and local officials, and describe
the extent of their consultation and the nature of the concerns of
State and local officials in the preamble to the regulation.
In the Departments' view, these final regulations have federalism
implications because they may have substantial direct effects on the
States, the relationship between the national government and States, or
on the distribution of power and responsibilities among the various
levels of government. However, in the Departments' view, the federalism
implications of these final regulations are substantially mitigated
because, with respect to health insurance issuers, the vast majority of
States have enacted laws which meet or exceed the federal HIPAA
portability standards.
In general, through section 514, ERISA supersedes State laws to the
extent that they relate to any covered employee benefit plan, and
preserves State laws that regulate insurance, banking or securities.
While ERISA prohibits States from regulating a plan as an insurance or
investment company or bank, HIPAA added a new section to ERISA (as well
as to the PHS Act) narrowly preempting State requirements for issuers
of group health insurance coverage. Specifically, with respect to seven
provisions of the HIPAA portability rules, States may impose stricter
obligations on health insurance issuers.\13\ Moreover, with respect to
other requirements for health insurance issuers, States may continue to
apply State law requirements except to the extent that such
requirements prevent the application of HIPAA's portability, access,
and renewability provisions.
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\13\ States may shorten the six-month look-back period prior to
the enrollment date; shorten the 12-month and 18-month maximum
preexisting condition exclusion periods; increase the 63-day
significant break in coverage period; increase the 30-day period for
newborns, adopted children, and children placed for adoption to
enroll in the plan with no preexisting condition exclusion; further
limit the circumstances in which a preexisting condition exclusion
may be applied (beyond the federal exceptions for certain newborns,
adopted children, children placed for adoption, pregnancy, and
genetic information in the absence of a diagnosis; require
additional special enrollment periods; and reduced the HMO
affiliation period to less than 2 months (3 months for late
enrollees).
---------------------------------------------------------------------------
In enacting these new preemption provisions, Congress intended to
preempt State insurance requirements only to the extent that they
prevent the application of the basic protections set forth in HIPAA.
HIPAA's conference report States that the conferees intended the
narrowest preemption of State laws with regard to health insurance
issuers. H.R. Conf. Rep. No. 736, 104th Cong. 2d Session 205 (1996).
State insurance laws that are more stringent than the federal
requirements are unlikely to ``prevent the application of'' the HIPAA
portability provisions, and be preempted. Accordingly, States have
significant latitude to impose requirements on health insurance
insurers that are more restrictive than the federal law.
Guidance conveying this interpretation of HIPAA's preemption
provisions was published in the Federal Register on April 8, 1997. 62
FR 16904. These final regulations clarify and implement the statute's
minimum standards and do not significantly reduce the discretion given
the States by the statute. Moreover, the Departments understand that
the vast majority of States have requirements that meet or exceed the
minimum requirements of the HIPAA portability provisions.
HIPAA provides that the States may enforce the provisions of HIPAA
as they pertain to issuers, but that the Secretary of Health and Human
Services must enforce any provisions that a State fails to
substantially enforce. Currently, HHS enforces the HIPAA portability
provisions in only one State in accordance with that State's specific
request to do so. When exercising its responsibility to enforce the
provisions of HIPAA, HHS works cooperatively with the State for the
purpose of addressing the State's concerns and avoiding conflicts with
the exercise of State authority. HHS has developed procedures to
implement its enforcement responsibilities, and to afford the States
the maximum opportunity to enforce HIPAA's requirements in the first
instance. HHS's procedures address the handling of reports that States
may not be substantially enforcing HIPAA's requirements, and the
mechanism for allocating responsibility between the States and HHS. In
compliance with Executive Order 13132's requirement that agencies
examine closely any policies that may have federalism implications or
limit the policymaking discretion of the States, DOL and HHS have
engaged in numerous efforts to consult and work cooperatively with
affected State and local officials.
For example, the Departments sought and received input from State
insurance regulators and the National Association of Insurance
Commissioners (NAIC). The NAIC is a non-profit corporation established
by the insurance commissioners of the 50 States, the District of
Columbia, and the four U.S. territories. In most States the Insurance
Commissioner is appointed by the Governor, in approximately 14 States,
the insurance commissioner is an elected official. Among other
activities, it provides a forum for the development of uniform policy
when uniformity is appropriate. Its members meet, discuss and offer
solutions to mutual problems. The NAIC sponsors quarterly meetings to
provide a forum for the exchange of ideas and in-depth consideration of
insurance issues by regulators, industry representatives and consumers.
CMS and the Department of Labor staff have consistently attended these
quarterly meetings to listen to the concerns of the
[[Page 78740]]
State Insurance Departments regarding HIPAA portability issues. In
addition to the general discussions, committee meetings, and task
groups, the NAIC sponsors the standing CMS/DOL meeting on HIPAA issues
for members during the quarterly conferences. This meeting provides CMS
and the Department of Labor with the opportunity to provide updates on
regulations, bulletins, enforcement actions, and outreach efforts
regarding HIPAA.
The Departments received written comments on the interim regulation
from the NAIC and from ten States. In general, these comments raised
technical issues that the Departments considered in conjunction with
similar issues raised by other commenters. In a letter sent before
issuance of the interim regulation, the NAIC expressed concerns that
the Departments interpret the new preemption provisions of HIPAA
narrowly so as to give the States flexibility to impose more stringent
requirements. As discussed above, the Departments address this concern
in the preamble to the interim regulation.
In addition, the Departments specifically consulted with the NAIC
in developing these final regulations. Through the NAIC, the
Departments sought and received the input of State insurance
departments regarding certain insurance industry definitions,
enrollment procedures and standard coverage terms. This input is
generally reflected in the discussion of comments received and changes
made in Section B--Overview of the Regulations of the preamble to these
regulations.
The Departments have also cooperated with the States in several
ongoing outreach initiatives, through which information on HIPAA is
shared among federal regulators, State regulators and the regulated
community. In particular, the Department of Labor has established a
Health Benefits Education Campaign with more than 70 partners,
including CMS, NAIC and many business and consumer groups. CMS has
sponsored conferences with the States--the Consumer Outreach and
Advocacy conferences in March 1999 and June 2000, and the
Implementation and Enforcement of HIPAA National State-Federal
Conferences in August 1999, 2000, 2001, 2002, and 2003. Furthermore,
both the Department of Labor and CMS Web sites offer links to important
State Web sites and other resources, facilitating coordination between
the State and federal regulators and the regulated community.
Throughout the process of developing these regulations, to the
extent feasible within the specific preemption provisions of HIPAA, the
Departments have attempted to balance the States' interests in
regulating health insurance issuers, and the Congress' intent to
provide uniform minimum protections to consumers in every State. By
doing so, it is the Departments' view that they have complied with the
requirements of Executive Order 13132.
Pursuant to the requirements set forth in Section 8(a) of Executive
Order 13132, and by the signatures affixed to these final regulations,
the Departments certify that the Employee Benefits Security
Administration and the Centers for Medicare & Medicaid Services have
complied with the requirements of Executive Order 13132 for the
attached final regulation, Final Regulations for Health Coverage
Portability for Group Health Plans and Group Health Insurance Issuers
(RIN 1210-AA54 and RIN 0938-AL43), in a meaningful and timely manner.
Basis for Assessment of Economic Impact--Department of Labor and
Department of Health and Human Services
As noted above, the primary economic effects of HIPAA's portability
provisions ensue directly from the statute. These regulations, by
clarifying and securing HIPAA's statutory protections, will delineate
and possibly expand HIPAA's effects at the margin.
Effects of the Statute
In order to determine how many workers could benefit from crediting
prior coverage against a new health plan's preexisting condition
exclusion period, we examined the 18 million individuals who changed
jobs in 2002. Of these, approximately 1 in 3 had health care coverage
at those jobs and an additional 8 million dependents also received
employer-sponsored health care coverage through these job changers. By
allowing prior creditable coverage, 4 million job changers, who had at
least 12 months of prior creditable coverage, were able to change jobs
without the risk of a preexisting condition exclusions for them or
their 5 million dependents. An additional 2 million workers who changed
jobs and had some smaller amount of prior coverage, faced reduced
waiting periods before receiving full coverage for them and their 3
million dependents.\14\
---------------------------------------------------------------------------
\14\ We calculated these estimates using internal runs off the
MEPS-HC. These runs gave the number of total job changers, total job
changers that had employer-sponsored insurance (ESI), and whether
this coverage had been for less than 12 months or not. Estimates for
dependents were based off the ratio of policy-holders to total
dependents from the March 2003 Current Population Survey (March
CPS). This approach to the question of how many people are impacted
by increased portability parallels that of the September 1995 U.S.
General Accounting Office (GAO), Report HEHS-95-257, ``Health
Insurance Portability: Reform Could Ensure Continued Coverage for up
to 25 Million Americans,'' September 1995.
---------------------------------------------------------------------------
The most direct effect of HIPAA's statutory group market
portability provisions is the extension of coverage to individuals and
preexisting conditions not otherwise covered. This extension of
coverage entails both benefits and costs. Individuals enjoying expanded
coverage will realize benefits. In some instances these individuals
will gain coverage for services they otherwise would have purchased
out-of-pocket, thereby reaping a simple and direct financial benefit In
other instances the extension of coverage will induce individuals to
consume more (or different) health care services, reaping a benefit
which has financial value, and which in some cases will produce
additional indirect benefits both to the individual (improved health)
and possibly to the economy at large (increased productivity).\15\ The
simple financial value of the direct benefits (essentially the dollar
value of the extended coverage) is estimated to be $515 million.\16\
The indirect benefits are
[[Page 78741]]
difficult to quantify (and the Departments have not attempted to do
so), but may be large in aggregate, and will be large for at least some
individuals whose health outcomes may be substantially improved.
---------------------------------------------------------------------------
\15\ For more detailed information, see Ellen O'Brien's article
``Employer' Benefits from Workers' Health Insurance'' Milbank
Quarterly, Vol. 1 No. 1, 2003. She provides an extensive analysis of
the literature on benefits accruing to employers from offering
health benefits. She reports that researchers are beginning to
calculate the costs to employers of unhealthy employees. Her work
provides information on studies that have demonstrated that poor
health may be related to lower productivity. For example, she
discusses studies that have examined the effects on workplace
productivity of specific health conditions and show that poor health
reduces workers' productivity at work, and that effective health
care treatments can reduce productivity losses and may even pay for
themselves in terms of increased productivity.
\16\ The estimate of $515 million is the 1999 projection
published in the August 1, 1996 Congressional Budget Office (CBO)
report, ``Estimate of Costs of Private Sector Mandates;'' Bill
Number H.R. 3103, indexed. The index is derived from the average
annual percent change from 1999 to 2004 in aggregate private health
insurance expenditures, as reported in Table 3 of the ``National
Health Care Projections Tables'' by the Centers for Medicare &
Medicaid Services, Office of the Actuary. CBO estimated the direct
cost to the private sector would total about $300 million in 1999.
The specific items included in the estimate are: (1) Limiting the
length of time employer-sponsored and group insurance plans could
withhold coverage for pre-existing conditions, and (2) requiring
that periods of continuous prior health plan coverage be credited
against pre-existing condition exclusions of a new plan.
According to CBO, two-thirds of the cost reflects the provision
to limit exclusions for pre-existing conditions. The key components
of this estimate are: (1) The number of people who would have more
of their medical expenses covered by insurance if exclusions were
limited to one year or less, and (2) the average cost to insurers of
that newly insured medical care. The provision crediting prior
coverage against current exclusions will account for a third of the
cost. This estimate is based on two components: (1) The number of
people who would receive some added coverage, and (2) the additional
full-year cost of coverage, adjusted to reflect the estimated number
of months of that coverage.
---------------------------------------------------------------------------
Another indirect (though intended) benefit of HIPAA's portability
provisions is a reduction in so-called ``job lock.'' Job lock occurs
when an individual stays in a job with health insurance that he or she
would prefer to leave out of concern that he or she would lose coverage
for care of his or her own or a covered dependent's preexisting
condition\17\.
---------------------------------------------------------------------------
\17\ Findings on the effect of health insurance coverage on job
mobility have been mixed. A thorough assessment of the job lock
literature in the past 10 years concluded that the most convincing
evidence suggests that health insurance plays an important role in
job mobility decisions, but is unclear as to its implications (see
Gruber, Jonathan and Brigitte C. Madrian, 2002, Health Insurance,
Labor Supply and Job Mobility: A Critical Review of the Literature,
NBER Working Paper Series, No. 8817). A major concern in this
literature has been to find an identification strategy able to
overcome the potential correlation between the holding of employer-
sponsored health insurance and other factors affecting job mobility
independent from health insurance (see Anna Sanz de Galdeano, 2004.
Health Insurance and Job Mobility: Evidence from Clinton's Second
Mandate, Center for Studies in Economics and Finance Working Paper,
No. 122). This is illustrated by the 2004 Health Confidence Survey
which finds that 27 percent of the non-aged population reported that
they or an immediate family member had experienced some form of job
lock, but only 15 percent of those attributed the job-lock to a
preexisting condition (see Ruth Helman & Paul Frostin, ``Public
Attitudes on the U.S. Health Care System: Findings from the Health
Confidence Survey.'' Employee Benefits Research Institute, Issue
Brief no. 275 (EBRI, November 2004)).
---------------------------------------------------------------------------
No attempt is made here to quantify increases in labor force
mobility attributable to reduced job lock under HIPAA. However, it is
noted that at least two indirect economic effects are likely to follow
such increased mobility. First, the cost of coverage for some
preexisting conditions will be transferred from one plan or issuer to
another.\18\ Second, if, as is likely, a result is movement of workers
into more productive jobs, the overall economy will benefit.
---------------------------------------------------------------------------
\18\ This transfer generally implies offsetting costs and
benefits. It is possible, however, that in some instances
individuals' mobility will allow them to exploit opportunities for
adverse selection by moving into a richer health plan (see Cutler,
D. and Reber, S., 1998. Paying for health insurance: the tradeoff
between competition and adverse selection. Quarterly Journal of
Economics 113, 433-466, and Cutler, D. and Zeckhauser, R. 2000. The
anatomy of health insurance, in Culyer, A., Newhouse, J.P. (Eds.),
Handbook of Health Economics, Vol. 1A. Elsevier, Amsterdam, pp. 564-
629. For a contrasting study see, Pauly, M.V., Mitchell, O. and
Zeng, Y. 2004 ``Death Spiral Or Euthanasia? The Demise Of Generous
Group Health Insurance Coverage'' NBER Working Paper No. 10464, for
a discussion). Such movements would constitute extensions of
coverage with costs and benefits resembling those of direct
extensions of coverage under HIPAA.
---------------------------------------------------------------------------
It should be noted that the benefits of HIPAA's portability
provisions in any given year will be concentrated in a relatively small
population--generally, individuals who because of some combination of
family health status and use of health services, job mobility, and plan
provisions related to preexisting condition exclusions or enrollment
opportunities, gain coverage under HIPAA for needed care that would
otherwise not be covered.
According to CBO, any point in time, about 100,000 individuals
would have a preexisting condition exclusion reduced for prior
creditable coverage. An additional 45,000 would gain added coverage in
the individual market.\19\
---------------------------------------------------------------------------
\19\ Congressional Budget Office, ``Estimate of Costs of Private
Sector Mandates; Bill Number H.R. 3103, August 1, 1996.
---------------------------------------------------------------------------
The direct costs of HIPAA's portability provisions generally
include the cost of extending coverage to additional services, as well
as certain attendant administrative costs. The cost of extended
coverage is estimated at $515 million annually. The major
administrative costs include the cost of providing certificates of
creditable coverage, and possibly the cost of carrying out special
enrollments and offsets of preexisting condition exclusion periods. The
Departments did not attempt to fully estimate the administrative costs
of the HIPAA statute but did, in crafting this regulation, attempt to
constrain these costs, where possible. without compromising HIPAA's
intent, as discussed below.
The Departments considered the probable incidence of these costs.
The Departments believe that by and large the cost of HIPAA, like all
of the cost of group health benefits, are borne by covered workers.\20\
The most direct ways this cost can be shifted to workers is through
increases in employee premium shares or reductions (or smaller
increases) in pay or other components of compensation. Other paths for
shifting of HIPAA's cost to workers might include increases in
deductibles or other cost sharing, or other reductions in the richness
of health benefits.
---------------------------------------------------------------------------
\20\ The voluntary nature of the employment-based health benefit
system in conjunction with the open and dynamic character of labor
markets make explicit as well as implicit negotiations on
compensation a key determinant of the prevalence of employee
benefits coverage. It is likely that 80% to 100% of the cost of
employee benefits is borne by workers through reduced wages (see for
example Jonathan Gruber and Alan B. Krueger, ``The Incidence of
Mandated Employer-Provided Insurance: Lessons from Workers
Compensation Insurance,'' Tax Policy and Economy (1991); Jonathan
Gruber, ``The Incidence of Mandated Maternity Benefits,'' American
Economic Review, Vol. 84 (June 1994), pp. 622-641; Lawrence H.
Summers, ``Some Simple Economics of Mandated Benefits,'' American
Economic Review, Vol. 79, No. 2 (May 1989); Louise Sheiner, ``Health
Care Costs, Wages, and Aging,'' Federal Reserve Board of Governors
working paper, April 1999; and Edward Montgomery, Kathryn Shaw, and
Mary Ellen Benedict, ``Pensions and Wages: An Hedonic Price Theory
Approach,'' International Economic Review, Vol. 33 No. 1, Feb.
1992). The prevalence of benefits is therefore largely dependent on
the efficacy of this exchange. If workers perceive that there is the
potential for inappropriate denial of benefits they will discount
their value to adjust for this risk. This discount drives a wedge in
the compensation negotiation, limiting its efficiency. With workers
unwilling to bear the full cost of the benefit, fewer benefits will
be provided. To the extent which workers perceive a federal
regulation supported by enforcement authority to improve the
security and quality of benefits, the differential between the
employers' costs and workers' willingness to accept wage offsets is
minimized.
---------------------------------------------------------------------------
Whereas the benefits of HIPAA are concentrated in a relatively
small population, the costs are distributed broadly across plans and
enrollees. The cost for affected large, self-insured or experience
rated group plans is spread across all enrollees in the plan. The cost
for small insured plans typically is spread across large populations of
small plans and their enrollees, partly as a result of State laws that
compress small group premium rates.
The Departments have considered whether the costs imposed by
HIPAA's statutory portability provisions have had any major indirect
negative effects, and concluded that such effects are possible but
probably small.
Any mandate to increase the richness or availability of health
insurance adds to the cost of insurance. It is possible that some small
number of employers already at the brink of affordability would drop
coverage in response to the implementation of HIPAA. The number of
employers so affected is probably limited in part because as noted
above, employers can shift HIPAA's cost to workers in various ways,
including through increases in employee premium shares or cost
sharing--though such increases might prompt some workers at the margin
to decline coverage. Economic literature provides some estimates of the
responsiveness of employers and workers to increases in the price of
insurance.\21\
---------------------------------------------------------------------------
\21\ Research shows that while the share of employers offering
insurance is generally stable and eligibility rates have only
declined slightly over time, the overall increase in uninsured
workers is due to the decline in worker take-up rates, which workers
primarily attribute to cost. Research on elasticity of coverage,
however, has focused on getting uninsured workers to adopt coverage
(which appears to require large subsidies) rather than covered
workers opting out of coverage. This makes it difficult to ascertain
the loss in coverage that would result from a marginal increase in
costs. (See, for example, David M. Cutler ``Employee Costs and the
Decline in Health Insurance Coverage'' NBER Working Paper
9036. July 2002; Gruber, Jonathon and Ebonya Washington.
``Subsidies to Employee Health Insurance Premiums and the Health
Insurance Market'' NBER Working Paper 9567. March 2003; and
Cooper, PF and J. Vistnes. ``Workers' Decisions to Take-up Offered
Insurance Coverage: Assessing the Importance of Out-of-Pocket
Costs'' Med Care 2003, 41(7 Suppl): III35-43.) Finally, economic
discussions on elasticity of insurance tend to view coverage as a
discrete concept and does not consider that the value of coverage
may have also changed.
---------------------------------------------------------------------------
[[Page 78742]]
The Departments note, however, that cost increases attributable to
HIPAA are not price increases per se but reflect the cost to enrich
benefits, implying that negative responses should be smaller than would
be expected in connection with pure price increases. The Departments
also note that the estimated $515 million cost associated with
extensions of coverage under HIPAA amounts to a small fraction of one
percent of total expenditures by private group health plans.\22\ This
compares with average annual group premium growth of 9.4 percent for
family coverage between 1996 and 2002.\23\ To the extent that such
increases are small, they are likely to have a negligible effect on
employers' decisions to provide health insurance and in workers'
decisions to enroll.
---------------------------------------------------------------------------
\22\ While these costs are expected in aggregate to be less than
one percent of total expenditures by group health plans, the statute
may disproportionately affect particular plans.
\23\ This is the average annual rate of increase in total family
premiums as reported in the Medical Expenditure Panel Survey,
Insurance Component (MEPS-IC) public tables, 1996-2002.
---------------------------------------------------------------------------
Various other studies to date suggest that any negative indirect
effects of HIPAA are relatively minor. In one study,\24\ large
employers and health benefit consultants reported few ongoing problems
in adopting HIPAA's portability provisions. Many issuers interviewed
for the report said that their plans tended to require few changes to
comply with HIPAA. This is probably because many large employer plans
had already incorporated portability protections, similar to those of
HIPAA. A second study indicates that while the share of small firms
(those with fewer than 200 workers) offering health insurance has
increased slightly from 1996 to 2004, the share has drifted downward
from its high of 68 percent in the economic boom year of 2000.\25\ In
addition, in aggregate, employers covered a larger proportion of health
care costs for family plans in 2002 than in 1996, with a slight
decrease in the share of single plans over the same time period.\26\
---------------------------------------------------------------------------
\24\ U.S. General Accounting Office, Report HEH-99-100,
``Private Health Insurance: Progress and Challenges in Implementing
1996 Federal Standards,'' pp. 6-7, May 1999.
\25\ Gabel, Jon R. et al. ``Health Benefits in 2004: Four Years
of Double Digit Premium Increases Take Their Toll on Coverage''
Health Affairs, Volume 23, Number 5, September/October 2004.
\26\ As reported in the MEPS-IC 1996-2002 public tables.
---------------------------------------------------------------------------
The data above suggest that the HIPAA changes may have been less
significant in the decision about health insurance coverage than
overall economic conditions and labor market forces. In fact, there is
no evidence that any indirect economic effect, positive or negative,
can be readily attributed to the statute. Therefore, it appears that
HIPAA has not placed an unreasonable burden on health plans.
There has been a significant decrease in the prevalence of
preexisting condition exclusion clauses among large plans. A major
employee benefits survey \27\ reported that in 1996, 59 percent of the
employees in small firms (less than 200 employees) were subject to pre-
existing condition limitations. In 2002, the figure had dropped to 33
percent. If preexisting condition limitation exists for new employees,
the average number of months to wait before coverage declined from 10.7
months in 1996 to 10.0 months in 2002. A discussion of results from a
1998 version of the same survey noted that, overall, 42 percent of
employers reported making changes to their plans' preexisting condition
clauses due to HIPAA. The Departments are not aware of any surveys that
have consistently tracked the prevalence of preexisting condition
exclusions in smaller plans (less than 200 employees) since 1996.
---------------------------------------------------------------------------
\27\ Employee Health Benefits 2002 Study, Kaiser Family
Foundation.
---------------------------------------------------------------------------
Another significant trend involves the use of waiting periods.
According to a survey of employers with 200 or more employees, the
average number of days that new enrollees must wait before health
coverage takes effect increased from 40 days in 1996 to 58 days in
1998. Some attribute this increase indirectly to HIPAA, suggesting that
some plans may be replacing the preexisting condition exclusion period
with a longer waiting period.
Effects of the Final Regulations
By clarifying and securing HIPAA's statutory portability
protections, these regulations will help ensure that HIPAA rights are
fully realized. The result is likely to be a small increase at the
margin in the direct and indirect economic effects of HIPAA's statutory
portability provisions.
Additional economic benefits derive from the regulations'
clarifications of HIPAA's portability requirements. The regulations
provide clarity through both their provisions and their examples of how
those provisions apply in various circumstances. By clarifying
employees' rights and plan sponsors' obligations under HIPAA's
portability provisions, the regulations will reduce uncertainty and
costly disputes over these rights and obligations. They will promote
employers' and employees' common understanding of the value of group
health plan benefits and confidence in the security and predictability
of those benefits, thereby improving labor market efficiency and
fostering the establishment and continuation of group health plans by
employers.
Many provisions of the final regulations closely resemble
provisions included in the interim final regulations that the final
regulations supplant. The economic impact of this regulatory action
therefore generally will be limited to the impact of provisions that
were not so included. These include both provisions directed at the
scope of HIPAA's portability protections and provisions establishing
administrative requirements intended to safeguard those protections.
Scope of Protections
These final regulations are intended to secure and implement
HIPAA's group market portability provisions under certain special
circumstances. The final regulations therefore contain a number of
provisions intended to clearly delimit the scope of HIPAA's portability
protections. Most of these provisions closely resemble and will have
the same effect as provisions of the interim final regulations. Others,
however, clarify or expand at the margin the range of situations to
which HIPAA's portability protections explicitly apply. These include
the requirement that health coverage under foreign government programs
be treated as creditable coverage for purposes of limiting the
application of preexisting condition exclusions; the extension of
special enrollment rights to individuals who lose eligibility for
coverage in connection with the application of lifetime benefit limits,
movement out of an HMO's service area, or the termination of a health
coverage option previously offered under a group health plan; and the
establishment of a special enrollment right for a participant to change
among available coverage options under a group health plan when
[[Page 78743]]
adding one or more dependents in connection with marriage, adoption, or
placement for adoption. Each of these provisions is expected to result
in a small increase in the economic effects of HIPAA's statutory
portability protections.
The Departments lack any firm basis for quantifying the number of
individuals likely to be affected by these provisions, and therefore
were unable to quantify the resultant increase in transfers. However,
given the special and narrow circumstances to which these provisions
apply, the number of affected individuals, and therefore the increase
in transfers under these regulations, is expected to be small. In
reaching this conclusion, the Departments considered the following.
In 2002, an estimated 359,000 employer sponsored insurance
enrollees had moved from abroad in the previous year.\28\ It is not
known what fraction of these had been covered under foreign government
programs, or of those, what fraction joined group health plans that
included preexisting condition exclusions while suffering from and
requiring additional care for preexisting conditions. Comparing GAO's
estimate of the number of individuals who could potentially benefit
from HIPAA's portability protections (20 million or more individuals
with prior creditable coverage who join new health plans in a given
year) with CBO estimates of the number who might actually have added
coverage for needed care (145,000) produces a ratio of about 1 percent.
If this proportion holds for group health plan enrollees who moved to
the U.S. from abroad, and if all such enrollees were previously covered
under a foreign government program (an upper bound), then about 4,000
individuals annually might gain coverage for needed care under the
final regulation's provision treating coverage under such programs as
creditable coverage.\29\
---------------------------------------------------------------------------
\28\ Calculation from the 2003 March CPS.
\29\ This number is 1 percent of the number of ESI holders in
2002 who moved from abroad the previous year.
---------------------------------------------------------------------------
The provision that clarifies the special enrollment rights of
individuals who lose eligibility for coverage in connection with the
movement out of an HMO's service area is expected mainly to benefit
certain individuals with COBRA continuation coverage. The number of
individuals affected in any given year is expected to be small. It is
estimated that in 2002, fewer than 10,000 COBRA enrollees were covered
by HMOs, moved across State or county lines, and were potentially
eligible for coverage under another family member's group plan.\30\
---------------------------------------------------------------------------
\30\ Estimates using the March 2003 CPS. It should be noted that
CPS is a weighted survey and that the number of actual observations
of individuals that were COBRA enrollees with HMO coverage, moved
across counties and/or States and were eligible for coverage under
another family member's group plan was extremely small. As a result,
this estimate is extremely noisy.
---------------------------------------------------------------------------
Lifetime benefit limits (LBL) are fairly common in-group health
plans and are typically set at $1 million or more.\31\ Based on
tabulations made by an actuarial consulting firm,\32\ in plans with
LBLs of $1 million, annually about 27 per one million enrollees will
exceed the benefit limits. In plans with a $500,000 LBL, the comparable
figure is 181 per million enrollees; and in plans with a $2 million
LBL, 5 per million enrollees. Combining these proportions with a
distribution of LBLs by plan enrollment reported by a national employer
survey, yields about 8,700 plan enrollees who will annually reach their
plan's LBL. The Departments recognize that those individuals who do
encounter such limits by definition have very high expenses, a large
portion of which would be transferred to the group health plans into
which they special enroll. It is possible, however, that a large share
of such transfers would have occurred even without the provisions of
these final regulations establishing a right to special enroll upon
encountering lifetime limits. For example, the same individuals might
have enrolled in these plans during open enrollment opportunities,
either before or after encountering the limits. Alternatively,
participants who have met their LBL might have left their jobs in order
to create a special enrollment opportunity.
---------------------------------------------------------------------------
\31\ See, for example, U.S. Bureau of Labor Statistics, Employee
Benefits in Medium and Large Establishments, 2000 (Washington, DC:
U.S. Government Printing Office, 2003).
\32\ Milliman USA memorandum dated December 6, 2001.
---------------------------------------------------------------------------
The Departments estimate that annually about 1 million families
will be eligible for special enrollments due to marriage, 2 million due
to births. About one-half of employees offered coverage at work have a
choice of plan options.\33\ Taken together, this suggests that the
number of individuals gaining special enrollment rights to switch among
options within group health plans when adding dependents may be large.
However, it is unclear how many will elect to switch, or how many who
do would have been so permitted even absent the applicable requirement
of these final regulations. More important, it is unclear whether
merely switching among options will increase or decrease the transfer
from the affected health plans to the affected individuals. In any
event, individuals exercising this special enrollment right to switch
options are not gaining coverage under any particular group health plan
but are merely modifying that coverage.
---------------------------------------------------------------------------
\33\ Sally Trude, ``Who Has A Choice of Health Plans?'' Center
for Studying Health Systems Change, Issue Brief: Findings from HSC,
No. 27, Feb. 2000.
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Administrative Requirements
In order to secure and implement HIPAA's group market special
enrollment and portability provisions, both the HIPAA statute and these
final regulations establish certain administrative requirements. As
noted above, the HIPAA statute generally requires plans and issuers to
provide certifications of prior coverage to individuals leaving
coverage. These regulations additionally require plans and issuers to
notify individuals of their special enrollments rights, any preexisting
condition exclusion provisions, and the applicability of such
exclusions where individuals provide evidence of prior coverage that is
of insufficient duration to fully offset exclusion periods. Plans will
incur cost to comply with these administrative requirements. The
Departments estimate the administrative cost to prepare and distribute
certifications and notices to be $97 million per year.\34\
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\34\ The Departments assumed that a clerical-level employee at a
total labor cost (wages, fringe benefits, and overhead) of $17.24
per-hour would generate the certificates. The Departments further
assumed that the average time required to complete a certification
is 4 to 5 minutes for all employers. This average is based on the
assumption that most employers will automate the certification
process. The cost of printing/copying, an envelope and postage is
assumed to be $0.53 per employee.
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Nearly all of this, or $96 million, is attributable to the
preparation and distribution of certifications as required under
HIPAA's statutory provisions. These final regulations include numerous
special provisions that serve to reduce plans' cost of providing
certifications. These provisions serve to streamline and standardize
certifications' content and format, minimize the number of duplicative
certifications issued, and encourage the use of telephone calls and
other modes of communication when they will suffice in lieu of written
certifications. The provisions are designed to minimize certifications'
cost while ensuring that individuals and plans (respectively) can
efficiently and effectively demonstrate and verify prior coverage.
Demonstration and verification of prior coverage enable individuals to
secure and plans to
[[Page 78744]]
appropriately honor individuals' portability rights under HIPAA.
First, an intermediate issuer will not have to issue a certificate
of creditable coverage when an individual changes options under the
same health plan. In lieu of the certificate, the issuer could simply
transmit to the plan information regarding individuals' effective date
of coverage and the last date of coverage. An individual would retain
the right to get a certificate automatically and upon request if he/she
leaves the plan.
Second, telephonic certification will fulfill the requirement to
send a certificate if the receiving plan, prior plan, and the
participant mutually agree to that arrangement. The individual can get
a written certificate upon request.
Third, in situations where the issuer and the plan contract for the
issuer to complete the certificates, the plan would not remain liable
even if the issuer failed to send the certificates.
Fourth, the period of coverage listed on automatic certificates
will be only the last continuous period of coverage without any break.
This is the most efficient and simplest method of record keeping for
plans and issuers.
Fifth, the period of coverage contained in the on-request
certification will be all periods of coverage ending within 24 months
before the date of the request. Essentially, a plan may simply look
back two years and send copies of any automatic certificates issued
during that period.
Sixth, a single certificate of creditable coverage can be provided
with respect to both a participant and the participant's dependent if
the information is identical for each individual. In addition,
certificates may contain combined information for families.
Seventh, plans and issuers are not required to furnish an
individual an automatic certificate with respect to a dependent until
they know or should know of the dependent's cessation of coverage under
the plan.
The above reductions in burdens on plans and issuers may cause more
frequent circumstances in which participants are required to
demonstrate creditable coverage. In order to help offset some of the
additional burdens that will be shifted to the participants, the
regulations provide the following protections:
First, if an individual is required to demonstrate dependent
status, the group health plan or issuer is required to treat the
individual as having furnished a certificate showing the dependent
status if the individual attests to such dependency and the period of
dependent status, and the individual cooperates with the plan's or
issuer's efforts to verify the dependent status.
Second, if the accuracy of a certificate is contested or a
certificate is unavailable when needed, individuals have the right to
demonstrate creditable coverage through the presentation of relevant
corroborating evidence of creditable coverage during the relevant time
period and by cooperating with the plan's efforts to verify the
individual's coverage.
Third, plans and issuers that impose preexisting condition
exclusion periods must notify participants of this fact. They must also
explain that prior creditable coverage can reduce the length of a
preexisting condition exclusion period, and that the plan or issuer
will assist in obtaining a certificate of creditable coverage from any
prior plan or issuer, if necessary. An exclusion may not be imposed
until this notice is given. This is beneficial to participants insofar
as it forewarns them of potential claim denials and enables them to
more easily exercise their right to protection from such denials under
HIPAA's portability provisions.
Fourth, after an individual has presented evidence of creditable
coverage, the plan or issuer must give the individual a written notice
of the length of any preexisting condition exclusion that remains after
offsetting for creditable coverage.
Fifth, certificates of creditable coverage now contain educational
language that more explicitly informs consumers of their HIPAA rights.
As noted earlier in this preamble, GAO and others recommended that
educational statements be added to certifications. The Departments have
provided a suitable statement for use by plans, thereby eliminating any
need for plans to develop their own. The cost of providing such
statements is therefore expected to be minimal.
The administrative cost associated with provision of certifications
under the HIPAA statute and these final regulations was estimated as
follows.
The ongoing burden associated with the issuance of automatic
certifications by group plans is estimated as a function of (1) the
number of events that trigger such issuances; (2) the statutory and
regulatory specifications for the content of the certificates; and (3)
the assumed burden associated with the preparation and distribution of
each certificate.
Certifications must be issued when an event, defined as the loss of
health coverage by a participant or by a dependent, occurs. Survey
tabulations indicate that there were 54.3 million events in 2002.\35\
Additionally, results from the March 1999 CPS indicate that about 3
percent of the events involve a dependent who lives at a different
address than the participant. In such cases the plan is required to
send out at least 2 separate certificates.
---------------------------------------------------------------------------
\35\ This total is based on internal estimates. The ESI total
(24.0 million or 20.4 private-sector and 3.6 public sector) was the
sum of policy-holders who left jobs, according to the 2002 MEPS-HC,
and their dependents, which were derived by multiplying this number
by the CPS ratio of dependents to policy holders. Based on counts of
the number of people with partial year coverage off the March 2003
CPS, we estimated the SCHIP and Medicaid total to be 14.9 million
and the private individual market to be 15.4 million.
---------------------------------------------------------------------------
The model certificate illustrates how plans may incur a lesser
burden when it is certified that prior periods of coverage were of at
least 18 months duration; that is, in lieu of a specific date that
coverage began and waiting/affiliation period information, such
certifications may simply indicate that the prior period of coverage
lasted at least 18 months. In contrast, certifications of shorter
periods of prior coverage must contain the specific dates when
coverage--and waiting/affiliation periods, if applicable--began.
Combining the options for the addresses with the time periods
results in four categories of certifications: (1) One address and less
than 18 months of prior creditable coverage (12 million annual events);
(2) one address and 18 months or more of prior creditable coverage
(42.3 million); (3) more than one address and prior creditable coverage
of less than 18 months (.4 million); and (4) more than one address and
18 months or more of prior creditable coverage (1.3 million).
Consistent with the interim regulations, we assume that the per-
certificate preparation effort requires 5 minutes for prior creditable
coverage of less than 18 months and 4 minutes for creditable coverage
that is greater than or equal to 18 months. The additional cost
involved in sending certificates to multiple addresses for a given
participant is assumed to be 50 percent of the cost of sending a
certificate to one address.
The Departments assumed that the certificates would be generated by
a clerical-level employee who costs the plans $17.24 per-hour in wages,
benefits, and overhead \36\. The cost of printing/copying, envelope and
postage is assumed to be $0.53 per envelope.
[[Page 78745]]
The resulting annual burden is $96 million.
---------------------------------------------------------------------------
\36\ The total labor cost is derived from wage and compensation
data from the Bureau of Labor Statistics and includes an overhead
componenet, which is a multiple of compensation based on the
Government Cost Estimate.
---------------------------------------------------------------------------
A more strict interpretation of the statute would require plans to
send an individual certificate to each affected enrollee. Obviously,
this requirement would significantly increase the administrative
burden. Such strict interpretation would result in plans sending 80.1
million certificates annually at cost of $157.6 million, which is $61.6
million more than the burden imposed by the final regulations.
The final regulations require that plans, in response to requests
made by or on behalf of individuals, provide certificates at any time
while the individual is covered under the plan and for up to 24 months
after coverage ceases. Such requests are most likely to be made by an
individual who is unable to locate the certificate of creditable
coverage from his/her prior health plan and is seeking to enroll in a
group health plan that imposes preexisting condition exclusions or is
seeking to reduce or eliminate any preexisting condition exclusions
that may otherwise be applied by a source of individual coverage.
The Departments believe that the requested certificate burden is
negligible for several reasons. First, as reported by a major health
benefits survey \37\ the proportion of enrollees that are in plans with
preexisting condition exclusion has not changed from the 2000 share of
30 percent, which is down from the pre-HIPAA level of 60 percent. In
addition, the educational statement contained within the certificate
serves to highlight the importance of the document, thus encouraging
its retention. Furthermore, the final rules permit individuals to
establish and verify creditable coverage through other means. Finally,
evidence of creditable coverage may be transmitted through means other
than documentation, such as by a telephone call from the plan to a
third party.
---------------------------------------------------------------------------
\37\ Kaiser Family Foundation and Health Research and
Educational Trust, Employer Health Benefits 2002 Annual Survey.
---------------------------------------------------------------------------
Apart from the provision of certifications of prior creditable
coverage, the remaining $1 million in administrative expenses is
attributable to notices of special enrollment rights and of the
existence and application of preexisting condition exclusions, which
are required under these final regulations. The Departments believe
that these notices are necessary to ensure that individuals understand
and can effectively exercise their special enrollment and portability
rights under HIPAA, and that the benefits of ensuring this outweigh the
associated administrative cost.
The regulations provide that a plan must provide all employees with
a notice describing special enrollment rights at or before the time the
employee is initially offered the opportunity to enroll in the plan.
The final regulations provide model language that can be used to
satisfy the special enrollment notice requirement.
The Departments believe that the vast majority of plans have
incorporated special enrollment language into their plan enrollment
materials. Thus, the cost of the special enrollment notice is assumed
to be a minor component of the overall cost of providing plan
enrollment materials.
The number of employees who are hired annually by firms that offer
health coverage and who are eligible for such coverage was developed by
using the proportion of workers with less than one year of tenure as
reported by the 2002 MEPS-HC. We find that 10.8 million employees will
be newly hired and eligible for health coverage on an annual basis. We
assume that the special enrollment notice is a component of plan
enrollment materials and requires one-third of a sheet of paper. Using
a printing/copying cost of $0.05 per page, we assume that the per-
notice cost is $0.0167. The resulting burden is estimated to be
$180,687.
The final regulations provide that every plan with a preexisting
condition exclusion must provide in writing a general notice of such
provisions to individuals eligible for enrollment under the plan. The
regulations specify what is required of the plan when it discusses the
amount and terms of its preexisting condition exclusion, including the
person to contact for further information regarding the exclusions. In
addition, the regulations clarify that issuers must describe the actual
maximum exclusion period that is applicable to a specific plan. A
regulatory example provides sample language that the plans can use to
develop the general notice.
Based on results from the 2000 Kaiser/HRET Employer survey, we
assume that 35 percent of plans with fewer than 100 participants, and
28 percent of plans with 100 or more participants, apply preexisting
condition exclusions to new enrollees. If we apply these proportions to
the number of new employees hired each year by employers that offer
health coverage, we find that 3.1 million employees will annually
receive the general notice.
As with the special enrollment notice, we assume that the general
notice of preexisting condition exclusions is a component of standard
plan enrollment materials and also requires one-third of a sheet of
paper. Assuming a printing/copying cost of $0.05 per page, the per-
notice cost is $0.0167. The annual cost to distribute the notices is
therefore estimated to be $51,852.
The regulations provide sample notice language, thus relieving the
plans of the burden of developing their own forms.
Plans that impose preexisting condition exclusions must, in
writing, notify participants who have failed to demonstrate sufficient
prior coverage that the exclusions will affect them and indicate what
the length of the preexisting condition exclusion period is, with
respect to each individual. This notice is required only in situations
in which the individual presents evidence of prior creditable coverage
and its duration is less than the maximum length of the preexisting
condition exclusion period. These final regulations clarify that the
notice does not have to identify any medical conditions that are
specific to the individual and subject to the exclusion.
Tabulations from the 2002 MEPS-HC indicate that, of those
individuals in the private sector who changed jobs and hold insurance,
16 percent have prior creditable coverage of between 1 day and 12
months, which is the statutory preexisting condition exclusion maximum
for individuals who enroll when first eligible. The comparable
proportion for State and local governmental plans is 18 percent.
Applying these proportion to the number of general preexisting
exclusion notices required, yields 478,569 notices that will be
prepared annually.
Because the notice must be customized to reflect each individual's
applicable preexisting condition exclusion period, the per-notice time
burden will be greater than that for the general notice of preexisting
condition exclusions. Consistent with the interim final regulations,
the Departments assume that the preparation of each notice will take
two minutes of a clerical-level employee's time, plus $0.47 for
printing, envelope, and postage, yielding a per-notice cost of $1.05.
The resulting annual burden is estimated to be $582,497.
The estimated burden represents only the cost of producing and
distributing the notices and does not include the expense involved in
determining the adequacy of a participant's prior coverage, since such
expense is considered to be part of the regular business practices
necessary to comply with HIPAA's statutory portability protections.
[[Page 78746]]
Generally all of the major administrative requirements included in
the final regulations were also included in the interim final
regulations. The final regulations make minor additions to two
requirements, however. They require plans to include educational
statements in certificates of creditable coverage and to maintain in
writing their procedures for requesting certificates. The cost of these
additional requirements is expected to be small, and was not estimated
separately from the overall cost of providing certificates.
The requirement that certification request procedures be in writing
is essentially a clarification of the interim final regulations'
requirement that plans have such procedures. The Departments believe it
is likely that most plans already maintain written procedures, and
therefore expect the cost of this requirement to be small. The
Departments did not estimate the cost of this requirement separately
from the cost of providing certifications on request.
Other changes included in these final regulations are likely to
slightly reduce plans' cost to provide certain HIPAA-required notices.
Included with the final regulation is new sample language for general
and specific notices of preexisting condition exclusions, which may
serve to reduce some plans' costs of providing these notices, and
revised sample language for special enrollment rights notices. The
final regulations also clarify the narrow scope of the requirement to
notify certain affected participants of the specific application of
preexisting condition exclusions, thereby potentially relieving some
plans of the burden associated with a more expansive interpretation of
that requirement. The Departments did not estimate the impact of these
provisions separately from the overall cost of providing general and
specific notices of preexisting condition exclusions and notices of
special enrollment rights.
Statutory Authority
The Department of the Treasury final rule is adopted pursuant to
the authority contained in sections 7805 and 9833 of the Code (26
U.S.C. 7805, 9833).
The Department of Labor final rule is adopted pursuant to the
authority contained in 29 U.S.C. 1027, 1059, 1135, 1161-1168, 1169,
1181-1183, 1181 note, 1185, 1185a, 1185b, 1191, 1191a, 1191b, and
1191c, sec. 101(g), Public Law 104-191, 101 Stat. 1936; sec. 401(b),
Public Law 105-200, 112 Stat. 645 (42 U.S.C. 651 note); Secretary of
Labor's Order 1-2003, 68 FR 5374 (Feb. 3, 2003).
The Department of HHS final rule is adopted pursuant to the
authority contained in sections 2701 through 2763, 2791, and 2792 of
the PHS Act (42 U.S.C. 300gg through 300gg-63, 300gg-91, and 300gg-92),
as added by HIPAA (Public Law 104-191, 110 Stat. 1936), and amended by
MHPA and NMHPA (Public Law 104-204, 110 Stat. 2935), and WHCRA (Public
Law 105-277, 112 Stat. 2681-436).
List of Subjects
26 CFR Part 54
Excise taxes, Health care, Health insurance, Pensions, Reporting
and recordkeeping requirements.
26 CFR Part 602
Reporting and recordkeeping requirements.
29 CFR Part 2590
Continuation coverage, Disclosure, Employee benefit plans, Group
health plans, Health care, Health insurance, Medical child support,
Reporting and recordkeeping requirements.
45 CFR Parts 144 and 146
Health care, Health insurance, Reporting and recordkeeping
requirements, and State regulation of health insurance.
Adoption of Amendments to the Regulations
Internal Revenue Service
26 CFR Chapter I
0
Accordingly, 26 CFR parts 54 and 602 are amended as follows:
PART 54--PENSION EXCISE TAXES
0
Paragraph 1. The authority citation for part 54 is amended by:
0
1. Removing the citations for 54.9801-1T, 54.9801-2T, 54.9801-3T,
54.9801-4T, 54.9801-5T, 54.9801-6T, 54.9831-1T, and 54.9833-1T.
0
2. Adding entries in numerical order for 54.9801-1, 54.9801-2, 54.9801-
3, 54.9801-4, 54.9801-5, 54.9801-6, 54.9802-1, 54.9831-1, and 54.9833-
1.
The additions read as follows:
Authority: 26 U.S.C. 7805. * * *
Section 54.9801-1 also issued under 26 U.S.C. 9833.
Section 54.9801-2 also issued under 26 U.S.C. 9833.
Section 54.9801-3 also issued under 26 U.S.C. 9801(c)(4),
9801(e)(3), and 9833.
Section 54.9801-4 also issued under 26 U.S.C. 9801(c)(1)(I) and
9833.
Section 54.9801-5 also issued under 26 U.S.C. 9801(c)(4),
9801(e)(3), and 9833.
Section 54.9801-6 also issued under 26 U.S.C. 9833.
Section 54.9802-1 also issued under 26 U.S.C. 9833. * * *
Section 54.9831-1 also issued under 26 U.S.C. 9833.
Section 54.9833-1 also issued under 26 U.S.C. 9833.
0
Par. 2. Sections 54.9801-1T, 54.9801-2T, 54.9801-3T, 54.9801-4T,
54.9801-5T, 54.9801-6T, 54.9831-1T, and 54.9833-1T are removed.
0
Par. 3. Sections 54.9801-1, 54.9801-2, 54.9801-3, 54.9801-4, 54.9801-5,
54.9801-6, 54.9831-1, and 54.9833-1 are added to read as follows:
Sec. 54.9801-1 Basis and scope.
(a) Statutory basis. Sections 54.9801-1 through 54.9801-6, 54.9802-
1, 54.9802-1T, 54.9811-1T, 54.9812-1T, 54.9831-1, and 54.9833-1
(portability sections) implement Chapter 100 of Subtitle K of the
Internal Revenue Code of 1986.
(b) Scope. A group health plan may provide greater rights to
participants and beneficiaries than those set forth in these
portability sections. These portability sections set forth minimum
requirements for group health plans concerning:
(1) Limitations on a preexisting condition exclusion period.
(2) Certificates and disclosure of previous coverage.
(3) Rules relating to creditable coverage.
(4) Special enrollment periods.
(5) Prohibition against discrimination on the basis of health
factors.
(c) Similar requirements under the Employee Retirement Income
Security Act and the Public Health Service Act. Sections 701, 702, 703,
711, 712, 732, and 733 of the Employee Retirement Income Security Act
of 1974 and sections 2701, 2702, 2704, 2705, 2721, and 2791 of the
Public Health Service Act impose requirements similar to those imposed
under Chapter 100 of Subtitle K with respect to health insurance
issuers offering group health insurance coverage. See 29 CFR part 2590
and 45 CFR parts 144, 146, and 148. See also part B of Title XXVII of
the Public Health Service Act and 45 CFR part 148 for other rules
applicable to health insurance offered in the individual market
(defined in Sec. 54.9801-2).
Sec. 54.9801-2 Definitions.
Unless otherwise provided, the definitions in this section govern
in applying the provisions of Sec. Sec. 54.9801-1 through 54.9801-6,
54.9802-1, 54.9802-1T, 54.9811-1T, 54.9812-1T, 54.9831-1, and 54.9833-
1.
Affiliation period means a period of time that must expire before
health insurance coverage provided by an HMO becomes effective, and
during which the HMO is not required to provide benefits.
[[Page 78747]]
COBRA definitions:
(1) COBRA means Title X of the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended.
(2) COBRA continuation coverage means coverage, under a group
health plan, that satisfies an applicable COBRA continuation provision.
(3) COBRA continuation provision means section 4980B (other than
paragraph (f)(1) of section 4980B insofar as it relates to pediatric
vaccines), sections 601-608 of ERISA, or Title XXII of the PHS Act.
(4) Exhaustion of COBRA continuation coverage means that an
individual's COBRA continuation coverage ceases for any reason other
than either failure of the individual to pay premiums on a timely
basis, or for cause (such as making a fraudulent claim or an
intentional misrepresentation of a material fact in connection with the
plan). An individual is considered to have exhausted COBRA continuation
coverage if such coverage ceases--
(i) Due to the failure of the employer or other responsible entity
to remit premiums on a timely basis;
(ii) When the individual no longer resides, lives, or works in the
service area of an HMO or similar program (whether or not within the
choice of the individual) and there is no other COBRA continuation
coverage available to the individual; or
(iii) When the individual incurs a claim that would meet or exceed
a lifetime limit on all benefits and there is no other COBRA
continuation coverage available to the individual.
Condition means a medical condition.
Creditable coverage means creditable coverage within the meaning of
Sec. 54.9801-4(a).
Dependent means any individual who is or may become eligible for
coverage under the terms of a group health plan because of a
relationship to a participant.
Employee Retirement Income Security Act of 1974 (ERISA) means the
Employee Retirement Income Security Act of 1974, as amended (29 U.S.C.
1001 et seq.).
Enroll means to become covered for benefits under a group health
plan (that is, when coverage becomes effective), without regard to when
the individual may have completed or filed any forms that are required
in order to become covered under the plan. For this purpose, an
individual who has health coverage under a group health plan is
enrolled in the plan regardless of whether the individual elects
coverage, the individual is a dependent who becomes covered as a result
of an election by a participant, or the individual becomes covered
without an election.
Enrollment date definitions (enrollment date, first day of
coverage, and waiting period) are set forth in Sec. 54.9801-
3(a)(3)(i), (ii), and (iii).
Excepted benefits means the benefits described as excepted in Sec.
54.9831(c).
Genetic information means information about genes, gene products,
and inherited characteristics that may derive from the individual or a
family member. This includes information regarding carrier status and
information derived from laboratory tests that identify mutations in
specific genes or chromosomes, physical medical examinations, family
histories, and direct analysis of genes or chromosomes.
Group health insurance coverage means health insurance coverage
offered in connection with a group health plan.
Group health plan or plan means a group health plan within the
meaning of Sec. 54.9831(a).
Group market means the market for health insurance coverage offered
in connection with a group health plan. (However, certain very small
plans may be treated as being in the individual market, rather than the
group market; see the definition of individual market in this section.)
Health insurance coverage means benefits consisting of medical care
(provided directly, through insurance or reimbursement, or otherwise)
under any hospital or medical service policy or certificate, hospital
or medical service plan contract, or HMO contract offered by a health
insurance issuer. Health insurance coverage includes group health
insurance coverage, individual health insurance coverage, and short-
term, limited-duration insurance. However, benefits described in Sec.
54.9831(c)(2) are not treated as benefits consisting of medical care.
Health insurance issuer or issuer means an insurance company,
insurance service, or insurance organization (including an HMO) that is
required to be licensed to engage in the business of insurance in a
State and that is subject to State law that regulates insurance (within
the meaning of section 514(b)(2) of ERISA). Such term does not include
a group health plan.
Health maintenance organization or HMO means--
(1) A federally qualified health maintenance organization (as
defined in section 1301(a) of the PHS Act);
(2) An organization recognized under State law as a health
maintenance organization; or
(3) A similar organization regulated under State law for solvency
in the same manner and to the same extent as such a health maintenance
organization.
Individual health insurance coverage means health insurance
coverage offered to individuals in the individual market, but does not
include short-term, limited-duration insurance. Individual health
insurance coverage can include dependent coverage.
Individual market means the market for health insurance coverage
offered to individuals other than in connection with a group health
plan. Unless a State elects otherwise in accordance with section
2791(e)(1)(B)(ii) of the PHS Act, such term also includes coverage
offered in connection with a group health plan that has fewer than two
participants who are current employees on the first day of the plan
year.
Issuer means a health insurance issuer.
Late enrollment definitions (late enrollee and late enrollment) are
set forth in Sec. 54.9801-3(a)(3)(v) and (vi) .
Medical care has the meaning given such term by section 213(d),
determined without regard to section 213(d)(1)(C) and so much of
section 213(d)(1)(D) as relates to qualified long-term care insurance.
Medical condition or condition means any condition, whether
physical or mental, including, but not limited to, any condition
resulting from illness, injury (whether or not the injury is
accidental), pregnancy, or congenital malformation. However, genetic
information is not a condition.
Participant means participant within the meaning of section 3(7) of
ERISA.
Placement, or being placed, for adoption means the assumption and
retention of a legal obligation for total or partial support of a child
by a person with whom the child has been placed in anticipation of the
child's adoption. The child's placement for adoption with such person
ends upon the termination of such legal obligation.
Plan year means the year that is designated as the plan year in the
plan document of a group health plan, except that if the plan document
does not designate a plan year or if there is no plan document, the
plan year is--
(1) The deductible or limit year used under the plan;
(2) If the plan does not impose deductibles or limits on a yearly
basis, then the plan year is the policy year;
(3) If the plan does not impose deductibles or limits on a yearly
basis, and either the plan is not insured or the insurance policy is
not renewed on an annual basis, then the plan year is the employer's
taxable year; or
[[Page 78748]]
(4) In any other case, the plan year is the calendar year.
Preexisting condition exclusion means preexisting condition
exclusion within the meaning of Sec. 54.9801-3(a)(1).
Public health plan means public health plan within the meaning of
Sec. 54.9801-4(a)(1)(ix).
Public Health Service Act (PHS Act) means the Public Health Service
Act (42 U.S.C. 201, et seq.).
Short-term, limited-duration insurance means health insurance
coverage provided pursuant to a contract with an issuer that has an
expiration date specified in the contract (taking into account any
extensions that may be elected by the policyholder without the issuer's
consent) that is less than 12 months after the original effective date
of the contract.
Significant break in coverage means a significant break in coverage
within the meaning of Sec. 54.9801-4(b)(2)(iii).
Special enrollment means enrollment in a group health plan under
the rights described in Sec. 54.9801-6 or in group health insurance
coverage under the rights described in 29 CFR 2590.701-6 or 45 CFR
146.117.
State health benefits risk pool means a State health benefits risk
pool within the meaning of Sec. 54.9801-4(a)(1)(vii).
Waiting period means waiting period within the meaning of Sec.
54.9801-3(a)(3)(iii).
Sec. 54.9801-3 Limitations on preexisting condition exclusion period.
(a) Preexisting condition exclusion--(1) Defined--(i) A preexisting
condition exclusion means a limitation or exclusion of benefits
relating to a condition based on the fact that the condition was
present before the effective date of coverage under a group health plan
or group health insurance coverage, whether or not any medical advice,
diagnosis, care, or treatment was recommended or received before that
day. A preexisting condition exclusion includes any exclusion
applicable to an individual as a result of information relating to an
individual's health status before the individual's effective date of
coverage under a group health plan or group health insurance coverage,
such as a condition identified as a result of a pre-enrollment
questionnaire or physical examination given to the individual, or
review of medical records relating to the pre-enrollment period.
(ii) Examples. The rules of this paragraph (a)(1) are illustrated
by the following examples:
Example 1. (i) Facts. A group health plan provides benefits
solely through an insurance policy offered by Issuer S. At the
expiration of the policy, the plan switches coverage to a policy
offered by Issuer T. Issuer T's policy excludes benefits for any
prosthesis if the body part was lost before the effective date of
coverage under the policy.
(ii) Conclusion. In this Example 1, the exclusion of benefits
for any prosthesis if the body part was lost before the effective
date of coverage is a preexisting condition exclusion because it
operates to exclude benefits for a condition based on the fact that
the condition was present before the effective date of coverage
under the policy. (Therefore, the exclusion of benefits is required
to comply with the limitations on preexisting condition exclusions
in this section. For an example illustrating the application of
these limitations to a succeeding insurance policy, see Example 3 of
paragraph (a)(3)(iv) of this section.)
Example 2. (i) Facts. A group health plan provides coverage for
cosmetic surgery in cases of accidental injury, but only if the
injury occurred while the individual was covered under the plan.
(ii) Conclusion. In this Example 2, the plan provision excluding
cosmetic surgery benefits for individuals injured before enrolling
in the plan is a preexisting condition exclusion because it operates
to exclude benefits relating to a condition based on the fact that
the condition was present before the effective date of coverage. The
plan provision, therefore, is subject to the limitations on
preexisting condition exclusions in this section.
Example 3. (i) Facts. A group health plan provides coverage for
the treatment of diabetes, generally not subject to any lifetime
dollar limit. However, if an individual was diagnosed with diabetes
before the effective date of coverage under the plan, diabetes
coverage is subject to a lifetime limit of $10,000.
(ii) Conclusion. In this Example 3, the $10,000 lifetime limit
is a preexisting condition exclusion because it limits benefits for
a condition based on the fact that the condition was present before
the effective date of coverage. The plan provision, therefore, is
subject to the limitations on preexisting condition exclusions in
this section.
Example 4. (i) Facts. A group health plan provides coverage for
the treatment of acne, subject to a lifetime limit of $2,000. The
plan counts against this $2,000 lifetime limit on acne treatment
benefits provided under prior health coverage.
(ii) Conclusion. In this Example 4, counting benefits for a
specific condition provided under prior health coverage against a
lifetime limit for that condition is a preexisting condition
exclusion because it operates to limit benefits for a condition
based on the fact that the condition was present before the
effective date of coverage. The plan provision, therefore, is
subject to the limitations on preexisting condition exclusions in
this section.
Example 5. (i) Facts. When an individual's coverage begins
under a group health plan, the individual generally becomes eligible
for all benefits. However, benefits for pregnancy are not available
until the individual has been covered under the plan for 12 months.
(ii) Conclusion. In this Example 5, the requirement to be
covered under the plan for 12 months to be eligible for pregnancy
benefits is a subterfuge for a preexisting condition exclusion
because it is designed to exclude benefits for a condition
(pregnancy) that arose before the effective date of coverage.
Because a plan is prohibited under paragraph (b)(5) of this section
from imposing any preexisting condition exclusion on pregnancy, the
plan provision is prohibited. However, if the plan provision
included an exception for women who were pregnant before the
effective date of coverage under the plan (so that the provision
applied only to women who became pregnant on or after the effective
date of coverage) the plan provision would not be a preexisting
condition exclusion (and would not be prohibited by paragraph (b)(5)
of this section).
Example 6. (i) Facts. A group health plan provides coverage for
medically necessary items and services, generally including
treatment of heart conditions. However, the plan does not cover
those same items and services when used for treatment of congenital
heart conditions.
(ii) Conclusion. In this Example 6, the exclusion of coverage
for treatment of congenital heart conditions is a preexisting
condition exclusion because it operates to exclude benefits relating
to a condition based on the fact that the condition was present
before the effective date of coverage. The plan provision,
therefore, is subject to the limitations on preexisting condition
exclusions in this section.
Example 7. (i) Facts. A group health plan generally provides
coverage for medically necessary items and services. However, the
plan excludes coverage for the treatment of cleft palate.
(ii) Conclusion. In this Example 7, the exclusion of coverage
for treatment of cleft palate is not a preexisting condition
exclusion because the exclusion applies regardless of when the
condition arose relative to the effective date of coverage. The plan
provision, therefore, is not subject to the limitations on
preexisting condition exclusions in this section.
Example 8. (i) Facts. A group health plan provides coverage for
treatment of cleft palate, but only if the individual being treated
has been continuously covered under the plan from the date of birth.
(ii) Conclusion. In this Example 8, the exclusion of coverage
for treatment of cleft palate for individuals who have not been
covered under the plan from the date of birth operates to exclude
benefits in relation to a condition based on the fact that the
condition was present before the effective date of coverage. The
plan provision, therefore, is subject to the limitations on
preexisting condition exclusions in this section.
(2) General rules. Subject to paragraph (b) of this section
(prohibiting the imposition of a preexisting condition exclusion with
respect to certain individuals and conditions), a group health plan may
impose, with respect to a participant or beneficiary, a preexisting
condition exclusion only if the requirements of this paragraph (a)(2)
are satisfied. (See section 701 of ERISA
[[Page 78749]]
and section 2701 of the PHS Act, under which these requirements are
also imposed on a health insurance issuer offering group health
insurance coverage.)
(i) 6-month look-back rule. A preexisting condition exclusion must
relate to a condition (whether physical or mental), regardless of the
cause of the condition, for which medical advice, diagnosis, care, or
treatment was recommended or received within the 6-month period (or
such shorter period as applies under the plan) ending on the enrollment
date.
(A) For purposes of this paragraph (a)(2)(i), medical advice,
diagnosis, care, or treatment is taken into account only if it is
recommended by, or received from, an individual licensed or similarly
authorized to provide such services under State law and operating
within the scope of practice authorized by State law.
(B) For purposes of this paragraph (a)(2)(i), the 6-month period
ending on the enrollment date begins on the 6-month anniversary date
preceding the enrollment date. For example, for an enrollment date of
August 1, 1998, the 6-month period preceding the enrollment date is the
period commencing on February 1, 1998 and continuing through July 31,
1998. As another example, for an enrollment date of August 30, 1998,
the 6-month period preceding the enrollment date is the period
commencing on February 28, 1998 and continuing through August 29, 1998.
(C) The rules of this paragraph (a)(2)(i) are illustrated by the
following examples:
Example 1. (i) Facts. Individual A is diagnosed with a medical
condition 8 months before A's enrollment date in Employer R's group
health plan. A's doctor recommends that A take a prescription drug
for 3 months, and A follows the recommendation.
(ii) Conclusion. In this Example 1, Employer R's plan may impose
a preexisting condition exclusion with respect to A's condition
because A received treatment during the 6-month period ending on A's
enrollment date in Employer R's plan by taking the prescription
medication during that period. However, if A did not take the
prescription drug during the 6-month period, Employer R's plan would
not be able to impose a preexisting condition exclusion with respect
to that condition.
Example 2. (i) Facts. Individual B is treated for a medical
condition 7 months before the enrollment date in Employer S's group
health plan. As part of such treatment, B's physician recommends
that a follow-up examination be given 2 months later. Despite this
recommendation, B does not receive a follow-up examination, and no
other medical advice, diagnosis, care, or treatment for that
condition is recommended to B or received by B during the 6-month
period ending on B's enrollment date in Employer S's plan.
(ii) Conclusion. In this Example 2, Employer S's plan may not
impose a preexisting condition exclusion with respect to the
condition for which B received treatment 7 months prior to the
enrollment date.
Example 3. (i) Facts. Same facts as Example 2, except that
Employer S's plan learns of the condition and attaches a rider to
B's certificate of coverage excluding coverage for the condition.
Three months after enrollment, B's condition recurs, and Employer
S's plan denies payment under the rider.
(ii) Conclusion. In this Example 3, the rider is a preexisting
condition exclusion and Employer S's plan may not impose a
preexisting condition exclusion with respect to the condition for
which B received treatment 7 months prior to the enrollment date.
(In addition, such a rider would violate the provisions of Sec.
54.9802-1, even if B had received treatment for the condition within
the 6-month period ending on the enrollment date.)
Example 4. (i) Facts. Individual C has asthma and is treated
for that condition several times during the 6-month period before
C's enrollment date in Employer T's plan. Three months after the
enrollment date, C begins coverage under Employer T's plan. Two
months later, C is hospitalized for asthma.
(ii) Conclusion. In this Example 4, Employer T's plan may impose
a preexisting condition exclusion with respect to C's asthma because
care relating to C's asthma was received during the 6-month period
ending on C's enrollment date (which, under the rules of paragraph
(a)(3)(i) of this section, is the first day of the waiting period).
Example 5. (i) Facts. Individual D, who is subject to a
preexisting condition exclusion imposed by Employer U's plan, has
diabetes, as well as retinal degeneration, a foot condition, and
poor circulation (all of which are conditions that may be directly
attributed to diabetes). D receives treatment for these conditions
during the 6-month period ending on D's enrollment date in Employer
U's plan. After enrolling in the plan, D stumbles and breaks a leg.
(ii) Conclusion. In this Example 5, the leg fracture is not a
condition related to D's diabetes, retinal degeneration, foot
condition, or poor circulation, even though they may have
contributed to the accident. Therefore, benefits to treat the leg
fracture cannot be subject to a preexisting condition exclusion.
However, any additional medical services that may be needed because
of D's preexisting diabetes, poor circulation, or retinal
degeneration that would not be needed by another patient with a
broken leg who does not have these conditions may be subject to the
preexisting condition exclusion imposed under Employer U's plan.
(ii) Maximum length of preexisting condition exclusion. A
preexisting condition exclusion is not permitted to extend for more
than 12 months (18 months in the case of a late enrollee) after the
enrollment date. For example, for an enrollment date of August 1, 1998,
the 12-month period after the enrollment date is the period commencing
on August 1, 1998 and continuing through July 31, 1999; the 18-month
period after the enrollment date is the period commencing on August 1,
1998 and continuing through January 31, 2000.
(iii) Reducing a preexisting condition exclusion period by
creditable coverage--(A) The period of any preexisting condition
exclusion that would otherwise apply to an individual under a group
health plan is reduced by the number of days of creditable coverage the
individual has as of the enrollment date, as counted under Sec.
54.9801-4. Creditable coverage may be evidenced through a certificate
of creditable coverage (required under Sec. 54.9801-5(a)), or through
other means in accordance with the rules of Sec. 54.9801-5(c).
(B) The rules of this paragraph (a)(2)(iii) are illustrated by the
following example:
Example. (i) Facts. Individual D works for Employer X and has
been covered continuously under X's group health plan. D's spouse
works for Employer Y. Y maintains a group health plan that imposes a
12-month preexisting condition exclusion (reduced by creditable
coverage) on all new enrollees. D enrolls in Y's plan, but also
stays covered under X's plan. D presents Y's plan with evidence of
creditable coverage under X's plan.
(ii) Conclusion. In this Example, Y's plan must reduce the
preexisting condition exclusion period that applies to D by the
number of days of coverage that D had under X's plan as of D's
enrollment date in Y's plan (even though D's coverage under X's plan
was continuing as of that date).
(iv) Other standards. See Sec. 54.9802-1 for other standards that
may apply with respect to certain benefit limitations or restrictions
under a group health plan. Other laws may also apply, such as the
Uniformed Services Employment and Reemployment Rights Act (USERRA),
which can affect the application of a preexisting condition exclusion
to certain individuals who are reinstated in a group health plan
following active military service.
(3) Enrollment definitions--(i) Enrollment date means the first day
of coverage (as described in paragraph (a)(3)(ii) of this section) or,
if there is a waiting period, the first day of the waiting period. If
an individual receiving benefits under a group health plan changes
benefit packages, or if the plan changes group health insurance
issuers, the individual's enrollment date does not change.
[[Page 78750]]
(ii) First day of coverage means, in the case of an individual
covered for benefits under a group health plan, the first day of
coverage under the plan and, in the case of an individual covered by
health insurance coverage in the individual market, the first day of
coverage under the policy or contract.
(iii) Waiting period means the period that must pass before
coverage for an employee or dependent who is otherwise eligible to
enroll under the terms of a group health plan can become effective. If
an employee or dependent enrolls as a late enrollee or special
enrollee, any period before such late or special enrollment is not a
waiting period. If an individual seeks coverage in the individual
market, a waiting period begins on the date the individual submits a
substantially complete application for coverage and ends on --
(A) If the application results in coverage, the date coverage
begins;
(B) If the application does not result in coverage, the date on
which the application is denied by the issuer or the date on which the
offer of coverage lapses.
(iv) The rules of paragraphs (a)(3)(i), (ii), and (iii) of this
section are illustrated by the following examples:
Example 1. (i) Facts. Employer V's group health plan provides
for coverage to begin on the first day of the first payroll period
following the date an employee is hired and completes the applicable
enrollment forms, or on any subsequent January 1 after completion of
the applicable enrollment forms. Employer V's plan imposes a
preexisting condition exclusion for 12 months (reduced by the
individual's creditable coverage) following an individual's
enrollment date. Employee E is hired by Employer V on October 13,
1998, and on October 14, 1998 E completes and files all the forms
necessary to enroll in the plan. E's coverage under the plan becomes
effective on October 25, 1998 (which is the beginning of the first
payroll period after E's date of hire).
(ii) Conclusion. In this Example 1, E's enrollment date is
October 13, 1998 (which is the first day of the waiting period for
E's enrollment and is also E's date of hire). Accordingly, with
respect to E, the permissible 6-month period in paragraph (a)(2)(i)
is the period from April 13, 1998 through October 12, 1998, the
maximum permissible period during which Employer V's plan can apply
a preexisting condition exclusion under paragraph (a)(2)(ii) is the
period from October 13, 1998 through October 12, 1999, and this
period must be reduced under paragraph (a)(2)(iii) by E's days of
creditable coverage as of October 13, 1998.
Example 2. (i) Facts. A group health plan has two benefit
package options, Option 1 and Option 2. Under each option a 12-month
preexisting condition exclusion is imposed. Individual B is enrolled
in Option 1 on the first day of employment with the employer
maintaining the plan, remains enrolled in Option 1 for more than one
year, and then decides to switch to Option 2 at open season.
(ii) Conclusion. In this Example 2, B cannot be subject to any
preexisting condition exclusion under Option 2 because any
preexisting condition exclusion period would have to begin on B's
enrollment date, which is B's first day of coverage, rather than the
date that B enrolled in Option 2. Therefore, the preexisting
condition exclusion period expired before B switched to Option 2.
Example 3. (i) Facts. On May 13, 1997, Individual E is hired by
an employer and enrolls in the employer's group health plan. The
plan provides benefits solely through an insurance policy offered by
Issuer S. On December 27, 1998, E's leg is injured in an accident
and the leg is amputated. On January 1, 1999, the plan switches
coverage to a policy offered by Issuer T. Issuer T's policy excludes
benefits for any prosthesis if the body part was lost before the
effective date of coverage under the policy.
(ii) Conclusion. In this Example 3, E's enrollment date is May
13, 1997, E's first day of coverage. Therefore, the permissible 6-
month look-back period for the preexisting condition exclusion
imposed under Issuer T's policy begins on November 13, 1996 and ends
on May 12, 1997. In addition, the 12-month maximum permissible
preexisting condition exclusion period begins on May 13, 1997 and
ends on May 12, 1998. Accordingly, because no medical advice,
diagnosis, care, or treatment was recommended to or received by E
for the leg during the 6-month look-back period (even though medical
care was provided within the 6-month period preceding the effective
date of E's coverage under Issuer T's policy), the plan may not
impose any preexisting condition exclusion with respect to E.
Moreover, even if E had received treatment during the 6-month look-
back period, the plan still would not be permitted to impose a
preexisting condition exclusion because the 12-month maximum
permissible preexisting condition exclusion period expired on May
12, 1998 (before the effective date of E's coverage under Issuer T's
policy). See 29 CFR 2590.701-3(a)(3)(iv) Example 3 and 45 CFR
146.111(a)(3)(iv) Example 3 for a conclusion that Issuer T is
similarly prohibited from imposing a preexisting condition exclusion
with respect to E.
Example 4. (i) Facts. A group health plan limits eligibility
for coverage to full-time employees of Employer Y. Coverage becomes
effective on the first day of the month following the date the
employee becomes eligible. Employee C begins working full-time for
Employer Y on April 11. Prior to this date, C worked part-time for
Y. C enrolls in the plan and coverage is effective May 1.
(ii) Conclusion. In this Example 4, C's enrollment date is April
11 and the period from April 11 through April 30 is a waiting
period. The period while C was working part-time, and therefore not
in an eligible class of employees, is not part of the waiting
period.
Example 5. (i) Facts. To be eligible for coverage under a
multiemployer group health plan in the current calendar quarter, the
plan requires an individual to have worked 250 hours in covered
employment during the previous quarter. If the hours requirement is
satisfied, coverage becomes effective on the first day of the
current calendar quarter. Employee D begins work on January 28 and
does not work 250 hours in covered employment during the first
quarter (ending March 31). D works at least 250 hours in the second
quarter (ending June 30) and is enrolled in the plan with coverage
effective July 1 (the first day of the third quarter).
(ii) Conclusion. In this Example 5, D's enrollment date is the
first day of the quarter during which D satisfies the hours
requirement, which is April 1. The period from April 1 through June
30 is a waiting period.
(v) Late enrollee means an individual whose enrollment in a plan is
a late enrollment.
(vi) (A) Late enrollment means enrollment of an individual under a
group health plan other than--
(1) On the earliest date on which coverage can become effective for
the individual under the terms of the plan; or
(2) Through special enrollment. (For rules relating to special
enrollment, see Sec. 54.9801-6.)
(B) If an individual ceases to be eligible for coverage under the
plan, and then subsequently becomes eligible for coverage under the
plan, only the individual's most recent period of eligibility is taken
into account in determining whether the individual is a late enrollee
under the plan with respect to the most recent period of coverage.
Similar rules apply if an individual again becomes eligible for
coverage following a suspension of coverage that applied generally
under the plan.
(vii) Examples. The rules of paragraphs (a)(3)(v) and (vi) of this
section are illustrated by the following examples:
Example 1. (i) Facts. Employee F first becomes eligible to be
covered by Employer W's group health plan on January 1, 1999 but
elects not to enroll in the plan until a later annual open
enrollment period, with coverage effective January 1, 2001. F has no
special enrollment right at that time.
(ii) Conclusion. In this Example 1, F is a late enrollee with
respect to F's coverage that became effective under the plan on
January 1, 2001.
Example 2. (i) Facts. Same facts as Example 1, except that F
terminates employment with Employer W on July 1, 1999 without having
had any health insurance coverage under the plan. F is rehired by
Employer W on January 1, 2000 and is eligible for and elects
coverage under Employer W's plan effective on January 1, 2000.
(ii) Conclusion. In this Example 2, F would not be a late
enrollee with respect to F's coverage that became effective on
January 1, 2000.
[[Page 78751]]
(b) Exceptions pertaining to preexisting condition exclusions--(1)
Newborns--(i) In general. Subject to paragraph (b)(3) of this section,
a group health plan may not impose any preexisting condition exclusion
on a child who, within 30 days after birth, is covered under any
creditable coverage. Accordingly, if a child is enrolled in a group
health plan (or other creditable coverage) within 30 days after birth
and subsequently enrolls in another group health plan without a
significant break in coverage (as described in Sec. 54.9801-
4(b)(2)(iii)), the other plan may not impose any preexisting condition
exclusion on the child.
(ii) Examples. The rules of this paragraph (b)(1) are illustrated
by the following examples:
Example 1. (i) Facts. Individual E, who has no prior creditable
coverage, begins working for Employer W and has accumulated 210 days
of creditable coverage under Employer W's group health plan on the
date E gives birth to a child. Within 30 days after the birth, the
child is enrolled in the plan. Ninety days after the birth, both E
and the child terminate coverage under the plan. Both E and the
child then experience a break in coverage of 45 days before E is
hired by Employer X and the two are enrolled in Employer X's group
health plan.
(ii) Conclusion. In this Example 1, because E's child is
enrolled in Employer W's plan within 30 days after birth, no
preexisting condition exclusion may be imposed with respect to the
child under Employer W's plan. Likewise, Employer X's plan may not
impose any preexisting condition exclusion on E's child because the
child was covered under creditable coverage within 30 days after
birth and had no significant break in coverage before enrolling in
Employer X's plan. On the other hand, because E had only 300 days of
creditable coverage prior to E's enrollment date in Employer X's
plan, Employer X's plan may impose a preexisting condition exclusion
on E for up to 65 days (66 days if the 12-month period after E's
enrollment date in X's plan includes February 29).
Example 2. (i) Facts. Individual F is enrolled in a group
health plan in which coverage is provided through a health insurance
issuer. F gives birth. Under State law applicable to the health
insurance issuer, health care expenses incurred for the child during
the 30 days following birth are covered as part of F's coverage.
Although F may obtain coverage for the child beyond 30 days by
timely requesting special enrollment and paying an additional
premium, the issuer is prohibited under State law from recouping the
cost of any expenses incurred for the child within the 30-day period
if the child is not later enrolled.
(ii) Conclusion. In this Example 2, the child is covered under
creditable coverage within 30 days after birth, regardless of
whether the child enrolls as a special enrollee under the plan.
Therefore, no preexisting condition exclusion may be imposed on the
child unless the child has a significant break in coverage.
(2) Adopted children. Subject to paragraph (b)(3) of this section,
a group health plan may not impose any preexisting condition exclusion
on a child who is adopted or placed for adoption before attaining 18
years of age and who, within 30 days after the adoption or placement
for adoption, is covered under any creditable coverage. Accordingly, if
a child is enrolled in a group health plan (or other creditable
coverage) within 30 days after adoption or placement for adoption and
subsequently enrolls in another group health plan without a significant
break in coverage (as described in Sec. 54.9801-4(b)(2)(iii)), the
other plan may not impose any preexisting condition exclusion on the
child. This rule does not apply to coverage before the date of such
adoption or placement for adoption.
(3) Significant break in coverage. Paragraphs (b)(1) and (2) of
this section no longer apply to a child after a significant break in
coverage. (See Sec. 54.9801-4(b)(2)(iii) for rules relating to the
determination of a significant break in coverage.)
(4) Special enrollment. For special enrollment rules relating to
new dependents, see Sec. 54.9801-6(b).
(5) Pregnancy. A group health plan may not impose a preexisting
condition exclusion relating to pregnancy.
(6) Genetic information--(i) A group health plan may not impose a
preexisting condition exclusion relating to a condition based solely on
genetic information. However, if an individual is diagnosed with a
condition, even if the condition relates to genetic information, the
plan may impose a preexisting condition exclusion with respect to the
condition, subject to the other limitations of this section.
(ii) The rules of this paragraph (b)(6) are illustrated by the
following example:
Example. (i) Facts. Individual A enrolls in a group health plan
that imposes a 12-month maximum preexisting condition exclusion.
Three months before A's enrollment, A's doctor told A that, based on
genetic information, A has a predisposition towards breast cancer. A
was not diagnosed with breast cancer at any time prior to A's
enrollment date in the plan. Nine months after A's enrollment date
in the plan, A is diagnosed with breast cancer.
(ii) Conclusion. In this Example, the plan may not impose a
preexisting condition exclusion with respect to A's breast cancer
because, prior to A's enrollment date, A was not diagnosed with
breast cancer.
(c) General notice of preexisting condition exclusion. A group
health plan imposing a preexisting condition exclusion must provide a
written general notice of preexisting condition exclusion to
participants under the plan and cannot impose a preexisting condition
exclusion with respect to a participant or a dependent of the
participant until such a notice is provided. (See 29 CFR 2590.701-3(c)
and 45 CFR 146.111(c), which also impose this requirement on a health
insurance issuer offering group health insurance coverage subject to a
preexisting condition exclusion.)
(1) Manner and timing. A plan must provide the general notice of
preexisting condition exclusion as part of any written application
materials distributed by the plan for enrollment. If the plan does not
distribute such materials, the notice must be provided by the earliest
date following a request for enrollment that the plan, acting in a
reasonable and prompt fashion, can provide the notice.
(2) Content. The general notice of preexisting condition exclusion
must notify participants of the following:
(i) The existence and terms of any preexisting condition exclusion
under the plan. This description includes the length of the plan's
look-back period (which is not to exceed 6 months under paragraph
(a)(2)(i) of this section); the maximum preexisting condition exclusion
period under the plan (which cannot exceed 12 months (or 18 months for
late enrollees) under paragraph (a)(2)(ii) of this section); and how
the plan will reduce the maximum preexisting condition exclusion period
by creditable coverage (described in paragraph (a)(2)(iii) of this
section).
(ii) A description of the rights of individuals to demonstrate
creditable coverage, and any applicable waiting periods, through a
certificate of creditable coverage (as required by Sec. 54.9801-5(a))
or through other means (as described in Sec. 54.9801-5(c)). This must
include a description of the right of the individual to request a
certificate from a prior plan or issuer, if necessary, and a statement
that the current plan will assist in obtaining a certificate from any
prior plan or issuer, if necessary.
(iii) A person to contact (including an address or telephone
number) for obtaining additional information or assistance regarding
the preexisting condition exclusion.
(3) Duplicate notices not required. If a notice satisfying the
requirements of this paragraph (c) is provided to an individual by
another party, the plan's obligation to provide a general notice of
preexisting condition exclusion with respect to that individual is
satisfied. (See 29 CFR 2590.701-3(c)(3) and 45 CFR 146.111(c)(3), which
provide that
[[Page 78752]]
the issuer's obligation is similarly satisfied.)
(4) Example with sample language. The rules of this paragraph (c)
are illustrated by the following example, which includes sample
language that plans can use as a basis for preparing their own notices
to satisfy the requirements of this paragraph (c):
Example. (i) Facts. A group health plan makes coverage
effective on the first day of the first calendar month after hire
and on each January 1 following an open season. The plan imposes a
12-month maximum preexisting condition exclusion (18 months for late
enrollees) and uses a 6-month look-back period. As part of the
enrollment application materials, the plan provides the following
statement:
This plan imposes a preexisting condition exclusion. This means
that if you have a medical condition before coming to our plan, you
might have to wait a certain period of time before the plan will
provide coverage for that condition. This exclusion applies only to
conditions for which medical advice, diagnosis, care, or treatment
was recommended or received within a six-month period. Generally,
this six-month period ends the day before your coverage becomes
effective. However, if you were in a waiting period for coverage,
the six-month period ends on the day before the waiting period
begins. The preexisting condition exclusion does not apply to
pregnancy nor to a child who is enrolled in the plan within 30 days
after birth, adoption, or placement for adoption.
This exclusion may last up to 12 months (18 months if you are a
late enrollee) from your first day of coverage, or, if you were in a
waiting period, from the first day of your waiting period. However,
you can reduce the length of this exclusion period by the number of
days of your prior ``creditable coverage.'' Most prior health
coverage is creditable coverage and can be used to reduce the
preexisting condition exclusion if you have not experienced a break
in coverage of at least 63 days. To reduce the 12-month (or 18-
month) exclusion period by your creditable coverage, you should give
us a copy of any certificates of creditable coverage you have. If
you do not have a certificate, but you do have prior health
coverage, we will help you obtain one from your prior plan or
issuer. There are also other ways that you can show you have
creditable coverage. Please contact us if you need help
demonstrating creditable coverage.
All questions about the preexisting condition exclusion and
creditable coverage should be directed to Individual B at Address M
or Telephone Number N.
(ii) Conclusion. In this Example, the plan satisfies the general
notice requirement of this paragraph (c).
(d) Determination of creditable coverage--(1) Determination within
reasonable time. If a group health plan receives creditable coverage
information under Sec. 54.9801-5, the plan is required, within a
reasonable time following receipt of the information, to make a
determination regarding the amount of the individual's creditable
coverage and the length of any exclusion that remains. Whether this
determination is made within a reasonable time depends on the relevant
facts and circumstances. Relevant facts and circumstances include
whether a plan's application of a preexisting condition exclusion would
prevent an individual from having access to urgent medical care. (See
29 CFR 2590.701-3(d) and 45 CFR 146.111(d), which also impose this
requirement on a health insurance issuer offering group health
insurance coverage.)
(2) No time limit on presenting evidence of creditable coverage. A
plan may not impose any limit on the amount of time that an individual
has to present a certificate or other evidence of creditable coverage.
(3) Example. The rules of this paragraph (d) are illustrated by the
following example:
Example. (i) Facts. A group health plan imposes a preexisting
condition exclusion period of 12 months. After receiving the general
notice of preexisting condition exclusion, Individual H develops an
urgent health condition before receiving a certificate of creditable
coverage from H's prior group health plan. H attests to the period
of prior coverage, presents corroborating documentation of the
coverage period, and authorizes the plan to request a certificate on
H's behalf in accordance with the rules of Sec. 54.9801-5.
(ii) Conclusion. In this Example, the plan must review the
evidence presented by H and make a determination of creditable
coverage within a reasonable time that is consistent with the
urgency of H's health condition. (This determination may be modified
as permitted under paragraph (f) of this section.)
(e) Individual notice of period of preexisting condition exclusion.
After an individual has presented evidence of creditable coverage and
after the plan has made a determination of creditable coverage under
paragraph (d) of this section, the plan must provide the individual a
written notice of the length of preexisting condition exclusion that
remains after offsetting for prior creditable coverage. This individual
notice is not required to identify any medical conditions specific to
the individual that could be subject to the exclusion. A plan is not
required to provide this notice if the plan does not impose any
preexisting condition exclusion on the individual or if the plan's
preexisting condition exclusion is completely offset by the
individual's prior creditable coverage. (See 29 CFR 2590.701-3(e) and
45 CFR 146.111(e), which also impose this requirement on a health
insurance issuer offering group health insurance coverage.)
(1) Manner and timing. The individual notice must be provided by
the earliest date following a determination that the plan, acting in a
reasonable and prompt fashion, can provide the notice.
(2) Content. A plan must disclose--
(i) Its determination of any preexisting condition exclusion period
that applies to the individual (including the last day on which the
preexisting condition exclusion applies);
(ii) The basis for such determination, including the source and
substance of any information on which the plan relied;
(iii) An explanation of the individual's right to submit additional
evidence of creditable coverage; and
(iv) A description of any applicable appeal procedures established
by the plan.
(3) Duplicate notices not required. If a notice satisfying the
requirements of this paragraph (e) is provided to an individual by
another party, the plan's obligation to provide this individual notice
of preexisting condition exclusion with respect to that individual is
satisfied. (See 29 CFR 2590.701-3(e)(3) and 45 CFR 146.111(e)(3), which
provide that the issuer's obligation is similarly satisfied.)
(4) Examples. The rules of this paragraph (e) are illustrated by
the following examples:
Example 1. (i) Facts. A group health plan imposes a preexisting
condition exclusion period of 12 months. After receiving the general
notice of preexisting condition exclusion, Individual G presents a
certificate of creditable coverage indicating 240 days of creditable
coverage. Within seven days of receipt of the certificate, the plan
determines that G is subject to a preexisting condition exclusion of
125 days, the last day of which is March 5. Five days later, the
plan notifies G that, based on the certificate G submitted, G is
subject to a preexisting condition exclusion period of 125 days,
ending on March 5. The notice also explains the opportunity to
submit additional evidence of creditable coverage and the plan's
appeal procedures. The notice does not identify any of G's medical
conditions that could be subject to the exclusion.
(ii) Conclusion. In this Example 1, the plan satisfies the
requirements of this paragraph (e).
Example 2. (i) Facts. Same facts as in Example 1, except that
the plan determines that G has 430 days of creditable coverage based
on G's certificate indicating 430 days of creditable coverage under
G's prior plan.
(ii) Conclusion. In this Example 2, the plan is not required to
notify G that G will not be subject to a preexisting condition
exclusion.
(f) Reconsideration. Nothing in this section prevents a plan from
modifying
[[Page 78753]]
an initial determination of creditable coverage if it determines that
the individual did not have the claimed creditable coverage, provided
that--
(1) A notice of the new determination (consistent with the
requirements of paragraph (e) of this section) is provided to the
individual; and
(2) Until the notice of the new determination is provided, the
plan, for purposes of approving access to medical services (such as a
pre-surgery authorization), acts in a manner consistent with the
initial determination.
Sec. 54.9801-4 Rules relating to creditable coverage.
(a) General rules--(1) Creditable coverage. For purposes of this
section, except as provided in paragraph (a)(2) of this section, the
term creditable coverage means coverage of an individual under any of
the following:
(i) A group health plan as defined in Sec. 54.9831-1(a).
(ii) Health insurance coverage as defined in Sec. 54.9801-2
(whether or not the entity offering the coverage is subject to Chapter
100 of Subtitle K, and without regard to whether the coverage is
offered in the group market, the individual market, or otherwise).
(iii) Part A or B of Title XVIII of the Social Security Act
(Medicare).
(iv) Title XIX of the Social Security Act (Medicaid), other than
coverage consisting solely of benefits under section 1928 of the Social
Security Act (the program for distribution of pediatric vaccines).
(v) Title 10 U.S.C. Chapter 55 (medical and dental care for members
and certain former members of the uniformed services, and for their
dependents; for purposes of Title 10 U.S.C. Chapter 55, uniformed
services means the armed forces and the Commissioned Corps of the
National Oceanic and Atmospheric Administration and of the Public
Health Service).
(vi) A medical care program of the Indian Health Service or of a
tribal organization.
(vii) A State health benefits risk pool. For purposes of this
section, a State health benefits risk pool means--
(A) An organization qualifying under section 501(c)(26);
(B) A qualified high risk pool described in section 2744(c)(2) of
the PHS Act; or
(C) Any other arrangement sponsored by a State, the membership
composition of which is specified by the State and which is established
and maintained primarily to provide health coverage for individuals who
are residents of such State and who, by reason of the existence or
history of a medical condition --
(1) Are unable to acquire medical care coverage for such condition
through insurance or from an HMO, or
(2) Are able to acquire such coverage only at a rate which is
substantially in excess of the rate for such coverage through the
membership organization.
(viii) A health plan offered under Title 5 U.S.C. Chapter 89 (the
Federal Employees Health Benefits Program).
(ix) A public health plan. For purposes of this section, a public
health plan means any plan established or maintained by a State, the
U.S. government, a foreign country, or any political subdivision of a
State, the U.S. government, or a foreign country that provides health
coverage to individuals who are enrolled in the plan.
(x) A health benefit plan under section 5(e) of the Peace Corps Act
(22 U.S.C. 2504(e)).
(xi) Title XXI of the Social Security Act (State Children's Health
Insurance Program).
(2) Excluded coverage. Creditable coverage does not include
coverage of solely excepted benefits (described in Sec. 54.9831-1).
(3) Methods of counting creditable coverage. For purposes of
reducing any preexisting condition exclusion period, as provided under
Sec. 54.9801-3(a)(2)(iii), the amount of an individual's creditable
coverage generally is determined by using the standard method described
in paragraph (b) of this section. A plan may use the alternative method
under paragraph (c) of this section with respect to any or all of the
categories of benefits described under paragraph (c)(3) of this section
or may provide that a health insurance issuer offering health insurance
coverage under the plan may use the alternative method of counting
creditable coverage.
(b) Standard method--(1) Specific benefits not considered. Under
the standard method, the amount of creditable coverage is determined
without regard to the specific benefits included in the coverage.
(2) Counting creditable coverage--(i) Based on days. For purposes
of reducing the preexisting condition exclusion period that applies to
an individual, the amount of creditable coverage is determined by
counting all the days on which the individual has one or more types of
creditable coverage. Accordingly, if on a particular day an individual
has creditable coverage from more than one source, all the creditable
coverage on that day is counted as one day. Any days in a waiting
period for coverage are not creditable coverage.
(ii) Days not counted before significant break in coverage. Days of
creditable coverage that occur before a significant break in coverage
are not required to be counted.
(iii) Significant break in coverage defined--A significant break in
coverage means a period of 63 consecutive days during each of which an
individual does not have any creditable coverage. (See section
731(b)(2)(iii) of ERISA and section 2723(b)(2)(iii) of the PHS Act,
which exclude from preemption State insurance laws that require a break
of more than 63 days before an individual has a significant break in
coverage for purposes of State law.)
(iv) Periods that toll a significant break. Days in a waiting
period and days in an affiliation period are not taken into account in
determining whether a significant break in coverage has occurred. In
addition, for an individual who elects COBRA continuation coverage
during the second election period provided under the Trade Act of 2002,
the days between the date the individual lost group health plan
coverage and the first day of the second COBRA election period are not
taken into account in determining whether a significant break in
coverage has occurred.
(v) Examples. The rules of this paragraph (b)(2) are illustrated by
the following examples:
Example 1. (i) Facts. Individual A has creditable coverage under
Employer P's plan for 18 months before coverage ceases. A is
provided a certificate of creditable coverage on A's last day of
coverage. Sixty-four days after the last date of coverage under P's
plan, a is hired by Employer Q and enrolls in Q's group health plan.
Q's plan has a 12-month preexisting condition exclusion.
(ii) Conclusion. In this Example 1, A has a break in coverage of
63 days. Because A's break in coverage is a significant break in
coverage, Q's plan may disregard A's prior coverage and a may be
subject to a 12-month preexisting condition exclusion.
Example 2. (i) Facts. Same facts as Example 1, except that A is
hired by Q and enrolls in Q's plan on the 63rd day after the last
date of coverage under P's plan.
(ii) Conclusion. In this Example 2, A has a break in coverage of
62 days. Because A's break in coverage is not a significant break in
coverage, Q's plan must count A's prior creditable coverage for
purposes of reducing the plan's preexisting condition exclusion
period that applies to A.
Example 3. (i) Facts. Same facts as Example 1, except that Q's
plan provides benefits through an insurance policy that, as required
by applicable State insurance laws, defines a significant break in
coverage as 90 days.
(ii) Conclusion. In this Example 3, under State law, the issuer
that provides group health insurance coverage to Q's plan must count
A's period of creditable coverage prior
[[Page 78754]]
to the 63-day break. (However, if Q's plan was a self-insured plan,
the coverage would not be subject to State law. Therefore, the
health coverage would not be governed by the longer break rules and
A's previous health coverage could be disregarded.)
Example 4. [Reserved]
Example 5. (i) Facts. Individual C has creditable coverage under
Employer S's plan for 200 days before coverage ceases. C is provided
a certificate of creditable coverage on C's last day of coverage. C
then does not have any creditable coverage for 51 days before being
hired by Employer T. T's plan has a 3-month waiting period. C works
for T for 2 months and then terminates employment. Eleven days after
terminating employment with T, C begins working for Employer U. U's
plan has no waiting period, but has a 6-month preexisting condition
exclusion.
(ii) Conclusion. In this Example 5, C does not have a
significant break in coverage because, after disregarding the
waiting period under T's plan, C had only a 62-day break in coverage
(51 days plus 11 days). accordingly, C has 200 days of creditable
coverage, and U's plan may not apply its 6-month preexisting
condition exclusion with respect to C.
Example 6. [Reserved]
Example 7. (i) Facts. Individual E has creditable coverage under
Employer X's plan. E is provided a certificate of creditable
coverage on E's last day of coverage. On the 63rd day without
coverage, E submits a substantially complete application for a
health insurance policy in the individual market. E's application is
accepted and coverage is made effective 10 days later.
(ii) Conclusion.
In this Example 7, because E applied for the policy before the
end of the 63rd day, the period between the date of application and
the first day of coverage is a waiting period and no significant
break in coverage occurred even though the actual period without
coverage was 73 days.
Example 8. (i) Facts. Same facts as Example 7, except that E's
application for a policy in the individual market is denied.
(ii) Conclusion. In this Example 8, even though E did not obtain
coverage following application, the period between the date of
application and the date the coverage was denied is a waiting
period. However, to avoid a significant break in coverage, no later
than the day after the application for the policy is denied E would
need to do one of the following: submit a substantially complete
application for a different individual market policy; obtain
coverage in the group market; or be in a waiting period for coverage
in the group market.
(vi) Other permissible counting methods--(a) Rule. Notwithstanding
any other provisions of this paragraph (b)(2), for purposes of reducing
a preexisting condition exclusion period (but not for purposes of
issuing a certificate under Sec. 54.9801-5), a group health plan may
determine the amount of creditable coverage in any other manner that is
at least as favorable to the individual as the method set forth in this
paragraph (b)(2), subject to the requirements of other applicable law.
(B) Example. The rule of this paragraph (b)(2)(vi) is illustrated
by the following example:
Example. (i) Facts. Individual F has coverage under Group Health
Plan Y from January 3, 1997 through March 25, 1997. F then becomes
covered by Group Health Plan Z. F's enrollment date in Plan Z is May
1, 1997. Plan Z has a 12-month preexisting condition exclusion.
(ii) Conclusion. In this Example, Plan Z may determine, in
accordance with the rules prescribed in paragraphs (b)(2)(i), (ii),
and (iii) of this section, that F has 82 days of creditable coverage
(29 days in January, 28 days in February, and 25 days in March).
Thus, the preexisting condition exclusion will no longer apply to F
on February 8, 1998 (82 days before the 12-month anniversary of F's
enrollment (May 1)). For administrative convenience, however, Plan Z
may consider that the preexisting condition exclusion will no longer
apply to F on the first day of the month (February 1).
(c) Alternative method--(1) Specific benefits considered. Under the
alternative method, a group health plan determines the amount of
creditable coverage based on coverage within any category of benefits
described in paragraph (c)(3) of this section and not based on coverage
for any other benefits. The plan may use the alternative method for any
or all of the categories. The plan may apply a different preexisting
condition exclusion period with respect to each category (and may apply
a different preexisting condition exclusion period for benefits that
are not within any category). The creditable coverage determined for a
category of benefits applies only for purposes of reducing the
preexisting condition exclusion period with respect to that category.
An individual's creditable coverage for benefits that are not within
any category for which the alternative method is being used is
determined under the standard method of paragraph (b) of this section.
(2) Uniform application. A plan using the alternative method is
required to apply it uniformly to all participants and beneficiaries
under the plan. A plan that provides benefits (in part or in whole)
through one or more policies or contracts of insurance will not fail
the uniform application requirement of this paragraph (c)(2) if the
alternative method is used (or not used) separately with respect to
participants and beneficiaries under any policy or contact, provided
that the alternative method is applied uniformly with respect to all
coverage under that policy or contract. The use of the alternative
method is required to be set forth in the plan.
(3) Categories of benefits. The alternative method for counting
creditable coverage may be used for coverage for the following
categories of benefits--
(i) Mental health;
(ii) Substance abuse treatment;
(iii) Prescription drugs;
(iv) Dental care; or
(v) Vision care.
(4) Plan notice. If the alternative method is used, the plan is
required to--
(i) State prominently that the plan is using the alternative method
of counting creditable coverage in disclosure statements concerning the
plan, and State this to each enrollee at the time of enrollment under
the plan; and
(ii) Include in these statements a description of the effect of
using the alternative method, including an identification of the
categories used.
(5) Disclosure of information on previous benefits. See Sec.
54.9801-5(b) for special rules concerning disclosure of coverage to a
plan (or issuer) using the alternative method of counting creditable
coverage under this paragraph (c).
(6) Counting creditable coverage--(i) In general. Under the
alternative method, the group health plan counts creditable coverage
within a category if any level of benefits is provided within the
category. Coverage under a reimbursement account or arrangement, such
as a flexible spending arrangement (as defined in section 106(c)(2)),
does not constitute coverage within any category.
(ii) Special rules. In counting an individual's creditable coverage
under the alternative method, the group health plan first determines
the amount of the individual's creditable coverage that may be counted
under paragraph (b) of this section, up to a total of 365 days of the
most recent creditable coverage (546 days for a late enrollee). The
period over which this creditable coverage is determined is referred to
as the determination period. Then, for the category specified under the
alternative method, the plan counts within the category all days of
coverage that occurred during the determination period (whether or not
a significant break in coverage for that category occurs), and reduces
the individual's preexisting condition exclusion period for that
category by that number of days. The plan may determine the amount of
creditable coverage in any other reasonable manner, uniformly applied,
that is at least as favorable to the individual.
[[Page 78755]]
(iii) Example. The rules of this paragraph (c)(6) are illustrated
by the following example:
Example. (i) Facts. Individual D enrolls in Employer V's plan on
January 1, 2001. Coverage under the plan includes prescription drug
benefits. On April 1, 2001, the plan ceases providing prescription
drug benefits. D's employment with Employer V ends on January 1,
2002, after D was covered under Employer V's group health plan for
365 days. D enrolls in Employer Y's plan on February 1, 2002 (D's
enrollment date). Employer Y's plan uses the alternative method of
counting creditable coverage and imposes a 12-month preexisting
condition exclusion on prescription drug benefits.
(ii) Conclusion. In this Example, Employer Y's plan may impose a
275-day preexisting condition exclusion with respect to D for
prescription drug benefits because D had 90 days of creditable
coverage relating to prescription drug benefits within D's
determination period.
Sec. 54.9801-5 Evidence of creditable coverage.
(a) Certificate of creditable coverage--(1) Entities required to
provide certificate--(i) In general. A group health plan is required to
furnish certificates of creditable coverage in accordance with this
paragraph (a). (See section 701(e) of ERISA and section 2701(e) of the
PHS Act, under which this obligation is also imposed on each health
insurance issuer offering group health insurance coverage under the
plan.)
(ii) Duplicate certificates not required. An entity required to
provide a certificate under this paragraph (a) with respect to an
individual satisfies that requirement if another party provides the
certificate, but only to the extent that the certificate contains the
information required in paragraph (a)(3) of this section. For example,
a group health plan is deemed to have satisfied the certification
requirement with respect to a participant or beneficiary if any other
entity actually provides a certificate that includes the information
required under paragraph (a)(3) of this section with respect to the
participant or beneficiary.
(iii) Special rule for group health plans. To the extent coverage
under a plan consists of group health insurance coverage, the plan
satisfies the certification requirements under this paragraph (a) if
any issuer offering the coverage is required to provide the
certificates pursuant to an agreement between the plan and the issuer.
For example, if there is an agreement between an issuer and an employer
sponsoring a plan under which the issuer agrees to provide certificates
for individuals covered under the plan, and the issuer fails to provide
a certificate to an individual when the plan would have been required
to provide one under this paragraph (a), then the plan does not violate
the certification requirements of this paragraph (a) (though the issuer
would have violated the certification requirements pursuant to section
701(e) of ERISA and section 2701(e) of the PHS Act).
(iv) Special rules relating to issuers providing coverage under a
plan--(A)(1) Responsibility of issuer for coverage period. See 29 CFR
2590.701-5 and 45 CFR 146.115, under which an issuer is not required to
provide information regarding coverage provided to an individual by
another party.
(2) Example. The rule referenced by this paragraph (a)(1)(iv)(A) is
illustrated by the following example:
Example. (i) Facts. A plan offers coverage with an HMO option
from one issuer and an indemnity option from a different issuer. The
HMO has not entered into an agreement with the plan to provide
certificates as permitted under paragraph (a)(1)(iii) of this
section.
(ii) Conclusion. In this Example, if an employee switches from
the indemnity option to the HMO option and later ceases to be
covered under the plan, any certificate provided by the HMO is not
required to provide information regarding the employee's coverage
under the indemnity option.
(B)(1) Cessation of issuer coverage prior to cessation of coverage
under a plan. If an individual's coverage under an issuer's policy or
contract ceases before the individual's coverage under the plan ceases,
the issuer is required (under section 701(e) of ERISA and section
2701(e) of the PHS Act) to provide sufficient information to the plan
(or to another party designated by the plan) to enable the plan (or
other party), after cessation of the individual's coverage under the
plan, to provide a certificate that reflects the period of coverage
under the policy or contract. By providing that information to the
plan, the issuer satisfies its obligation to provide an automatic
certificate for that period of creditable coverage with respect to the
individual under paragraph (a)(2)(ii) of this section. The issuer,
however, must still provide a certificate upon request as required
under paragraph (a)(2)(iii) of this section. In addition, the issuer is
required to cooperate with the plan in responding to any request made
under paragraph (b)(2) of this section (relating to the alternative
method of counting creditable coverage). Moreover, if the individual's
coverage under the plan ceases at the time the individual's coverage
under the issuer's policy or contract ceases, the issuer must still
provide an automatic certificate under paragraph (a)(2)(ii) of this
section. If an individual's coverage under an issuer's policy or
contract ceases on the effective date for changing enrollment options
under the plan, the issuer may presume (absent information to the
contrary) that the individual's coverage under the plan continues.
Therefore, the issuer is required to provide information to the plan in
accordance with this paragraph (a)(1)(iv)(B)(1) (and is not required to
provide an automatic certificate under paragraph (a)(2)(ii) of this
section).
(2) Example. The rule of this paragraph (a)(1)(iv)(B) is
illustrated by the following example:
Example. (i) Facts. A group health plan provides coverage under
an HMO option and an indemnity option through different issuers, and
only allows employees to switch on each January 1. Neither the HMO
nor the indemnity issuer has entered into an agreement with the plan
to provide certificates as permitted under paragraph (a)(1)(iii) of
this section.
(ii) Conclusion. In this Example, if an employee switches from
the indemnity option to the HMO option on January 1, the indemnity
issuer must provide the plan (or a person designated by the plan)
with appropriate information with respect to the individual's
coverage with the indemnity issuer. However, if the individual's
coverage with the indemnity issuer ceases at a date other than
January 1, the issuer is instead required to provide the individual
with an automatic certificate.
(2) Individuals for whom certificate must be provided; timing of
issuance--(i) Individuals. A certificate must be provided, without
charge, for participants or dependents who are or were covered under a
group health plan upon the occurrence of any of the events described in
paragraph (a)(2)(ii) or (iii) of this section.
(ii) Issuance of automatic certificates. The certificates described
in this paragraph (a)(2)(ii) are referred to as automatic certificates.
(A) Qualified beneficiaries upon a qualifying event. In the case of
an individual who is a qualified beneficiary (as defined in section
4980B(g)(3)) entitled to elect COBRA continuation coverage, an
automatic certificate is required to be provided at the time the
individual would lose coverage under the plan in the absence of COBRA
continuation coverage or alternative coverage elected instead of COBRA
continuation coverage. A plan satisfies this requirement if it provides
the automatic certificate no later than the time a notice is required
to be furnished for a qualifying event under section 4980B(f)(6)
(relating to notices required under COBRA).
(B) Other individuals when coverage ceases. In the case of an
individual who
[[Page 78756]]
is not a qualified beneficiary entitled to elect COBRA continuation
coverage, an automatic certificate must be provided at the time the
individual ceases to be covered under the plan. A plan satisfies the
requirement to provide an automatic certificate at the time the
individual ceases to be covered if it provides the automatic
certificate within a reasonable time after coverage ceases (or after
the expiration of any grace period for nonpayment of premiums).
(1) The cessation of temporary continuation coverage (TCC) under
Title 5 U.S.C. Chapter 89 (the Federal Employees Health Benefit
Program) is a cessation of coverage upon which an automatic certificate
must be provided.
(2) In the case of an individual who is entitled to elect to
continue coverage under a State program similar to COBRA and who
receives the automatic certificate not later than the time a notice is
required to be furnished under the State program, the certificate is
deemed to be provided within a reasonable time after coverage ceases
under the plan.
(3) If an individual's coverage ceases due to the operation of a
lifetime limit on all benefits, coverage is considered to cease for
purposes of this paragraph (a)(2)(ii)(B) on the earliest date that a
claim is denied due to the operation of the lifetime limit.
(C) Qualified beneficiaries when COBRA ceases. In the case of an
individual who is a qualified beneficiary and has elected COBRA
continuation coverage (or whose coverage has continued after the
individual became entitled to elect COBRA continuation coverage), an
automatic certificate is to be provided at the time the individual' s
coverage under the plan ceases. A plan satisfies this requirement if it
provides the automatic certificate within a reasonable time after
coverage ceases (or after the expiration of any grace period for
nonpayment of premiums). An automatic certificate is required to be
provided to such an individual regardless of whether the individual has
previously received an automatic certificate under paragraph
(a)(2)(ii)(A) of this section.
(iii) Any individual upon request. A certificate must be provided
in response to a request made by, or on behalf of, an individual at any
time while the individual is covered under a plan and up to 24 months
after coverage ceases. Thus, for example, a plan in which an individual
enrolls may, if authorized by the individual, request a certificate of
the individual's creditable coverage on behalf of the individual from a
plan in which the individual was formerly enrolled. After the request
is received, a plan or issuer is required to provide the certificate by
the earliest date that the plan, acting in a reasonable and prompt
fashion, can provide the certificate. A certificate is required to be
provided under this paragraph (a)(2)(iii) even if the individual has
previously received a certificate under this paragraph (a)(2)(iii) or
an automatic certificate under paragraph (a)(2)(ii) of this section.
(iv) Examples. The rules of this paragraph (a)(2) are illustrated
by the following examples:
Example 1. (i) Facts. Individual A terminates employment with
Employer Q. A is a qualified beneficiary entitled to elect COBRA
continuation coverage under Employer Q's group health plan. A notice
of the rights provided under COBRA is typically furnished to
qualified beneficiaries under the plan within 10 days after a
covered employee terminates employment.
(ii) Conclusion. In this Example 1, the automatic certificate
may be provided at the same time that A is provided the COBRA
notice.
Example 2. (i) Facts. Same facts as Example 1, except that the
automatic certificate for A is not completed by the time the COBRA
notice is furnished to A.
(ii) Conclusion. In this Example 2, the automatic certificate
may be provided after the COBRA notice but must be provided within
the period permitted by law for the delivery of notices under COBRA.
Example 3. (i) Facts. Employer R maintains an insured group
health plan. R has never had 20 employees and thus R's plan is not
subject to the COBRA continuation provisions. However, R is in a
State that has a State program similar to COBRA. B terminates
employment with R and loses coverage under R's plan.
(ii) Conclusion. In this Example 3, the automatic certificate
must be provided not later than the time a notice is required to be
furnished under the State program.
Example 4. (i) Facts. Individual C terminates employment with
Employer S and receives both a notice of C's rights under COBRA and
an automatic certificate. C elects COBRA continuation coverage under
Employer S's group health plan. After four months of COBRA
continuation coverage and the expiration of a 30-day grace period,
S's group health plan determines that C's COBRA continuation
coverage has ceased due to a failure to make a timely payment for
continuation coverage.
(ii) Conclusion. In this Example 4, the plan must provide an
updated automatic certificate to C within a reasonable time after
the end of the grace period.
Example 5. (i) Facts. Individual D is currently covered under
the group health plan of Employer T. D requests a certificate, as
permitted under paragraph (a)(2)(iii) of this section. Under the
procedure for T's plan, certificates are mailed (by first class
mail) 7 business days following receipt of the request. This date
reflects the earliest date that the plan, acting in a reasonable and
prompt fashion, can provide certificates.
(ii) Conclusion. In this Example 5, the plan's procedure
satisfies paragraph (a)(2)(iii) of this section.
(3) Form and content of certificate--(i) Written certificate--(A)
In general. Except as provided in paragraph (a)(3)(i)(B) of this
section, the certificate must be provided in writing (including any
form approved by the Secretary as a writing).
(B) Other permissible forms. No written certificate is required to
be provided under this paragraph (a) with respect to a particular event
described in paragraph (a)(2)(ii) or (iii) of this section, if --
(1) An individual who is entitled to receive the certificate
requests that the certificate be sent to another plan or issuer instead
of to the individual;
(2) The plan or issuer that would otherwise receive the certificate
agrees to accept the information in this paragraph (a)(3) through means
other than a written certificate (such as by telephone); and
(3) The receiving plan or issuer receives the information from the
sending plan or issuer through such means within the time required
under paragraph (a)(2) of this section.
(ii) Required information. The certificate must include the
following--
(A) The date the certificate is issued;
(B) The name of the group health plan that provided the coverage
described in the certificate;
(C) The name of the participant or dependent with respect to whom
the certificate applies, and any other information necessary for the
plan providing the coverage specified in the certificate to identify
the individual, such as the individual's identification number under
the plan and the name of the participant if the certificate is for (or
includes) a dependent;
(D) The name, address, and telephone number of the plan
administrator or issuer required to provide the certificate;
(E) The telephone number to call for further information regarding
the certificate (if different from paragraph (a)(3)(ii)(D) of this
section);
(F) Either--
(1) A statement that an individual has at least 18 months (for this
purpose, 546 days is deemed to be 18 months) of creditable coverage,
disregarding days of creditable coverage before a significant break in
coverage, or
(2) The date any waiting period (and affiliation period, if
applicable) began and the date creditable coverage began;
(G) The date creditable coverage ended, unless the certificate
indicates that creditable coverage is continuing as of the date of the
certificate; and
[[Page 78757]]
(H) An educational statement regarding HIPAA, which explains:
(1) The restrictions on the ability of a plan or issuer to impose a
preexisting condition exclusion (including an individual's ability to
reduce a preexisting condition exclusion by creditable coverage);
(2) Special enrollment rights;
(3) The prohibitions against discrimination based on any health
factor;
(4) The right to individual health coverage;
(5) The fact that State law may require issuers to provide
additional protections to individuals in that State; and
(6) Where to get more information.
(iii) Periods of coverage under the certificate. If an automatic
certificate is provided pursuant to paragraph (a)(2)(ii) of this
section, the period that must be included on the certificate is the
last period of continuous coverage ending on the date coverage ceased.
If an individual requests a certificate pursuant to paragraph
(a)(2)(iii) of this section, the certificate provided must include each
period of continuous coverage ending within the 24-month period ending
on the date of the request (or continuing on the date of the request).
A separate certificate may be provided for each such period of
continuous coverage.
(iv) Combining information for families. A certificate may provide
information with respect to both a participant and the participant's
dependents if the information is identical for each individual. If the
information is not identical, certificates may be provided on one form
if the form provides all the required information for each individual
and separately states the information that is not identical.
(v) Model certificate. The requirements of paragraph (a)(3)(ii) of
this section are satisfied if the plan provides a certificate in
accordance with a model certificate authorized by the Secretary.
(vi) Excepted benefits; categories of benefits. No certificate is
required to be furnished with respect to excepted benefits described in
Sec. 54.9831-1(c). In addition, the information in the certificate
regarding coverage is not required to specify categories of benefits
described in Sec. 54.9801-4(c) (relating to the alternative method of
counting creditable coverage). However, if excepted benefits are
provided concurrently with other creditable coverage (so that the
coverage does not consist solely of excepted benefits), information
concerning the benefits may be required to be disclosed under paragraph
(b) of this section.
(4) Procedures--(i) Method of delivery. The certificate is required
to be provided to each individual described in paragraph (a)(2) of this
section or an entity requesting the certificate on behalf of the
individual. The certificate may be provided by first-class mail. If the
certificate or certificates are provided to the participant and the
participant's spouse at the participant's last known address, then the
requirements of this paragraph (a)(4) are satisfied with respect to all
individuals residing at that address. If a dependent's last known
address is different than the participant's last known address, a
separate certificate is required to be provided to the dependent at the
dependent's last known address. If separate certificates are being
provided by mail to individuals who reside at the same address,
separate mailings of each certificate are not required.
(ii) Procedure for requesting certificates. A plan or issuer must
establish a written procedure for individuals to request and receive
certificates pursuant to paragraph (a)(2)(iii) of this section. The
written procedure must include all contact information necessary to
request a certificate (such as name and phone number or address).
(iii) Designated recipients. If an automatic certificate is
required to be provided under paragraph (a)(2)(ii) of this section, and
the individual entitled to receive the certificate designates another
individual or entity to receive the certificate, the plan or issuer
responsible for providing the certificate is permitted to provide the
certificate to the designated individual or entity. If a certificate is
required to be provided upon request under paragraph (a)(2)(iii) of
this section and the individual entitled to receive the certificate
designates another individual or entity to receive the certificate, the
plan or issuer responsible for providing the certificate is required to
provide the certificate to the designated individual or entity.
(5) Special rules concerning dependent coverage--(i)(A) Reasonable
efforts. A plan is required to use reasonable efforts to determine any
information needed for a certificate relating to dependent coverage. In
any case in which an automatic certificate is required to be furnished
with respect to a dependent under paragraph (a)(2)(ii) of this section,
no individual certificate is required to be furnished until the plan
knows (or making reasonable efforts should know) of the dependent's
cessation of coverage under the plan.
(B) Example. The rules of this paragraph (a)(5)(i) are illustrated
by the following example:
Example. (i) Facts. A group health plan covers employees and
their dependents. The plan annually requests all employees to
provide updated information regarding dependents, including the
specific date on which an employee has a new dependent or on which a
person ceases to be a dependent of the employee.
(ii) Conclusion. In this Example, the plan has satisfied the
standard in this paragraph (a)(5)(i) of this section that it make
reasonable efforts to determine the cessation of dependents'
coverage and the related dependent coverage information.
(ii) Special rules for demonstrating coverage. If a certificate
furnished by a plan or issuer does not provide the name of any
dependent covered by the certificate, the procedures described in
paragraph (c)(5) of this section may be used to demonstrate dependent
status. In addition, these procedures may be used to demonstrate that a
child was covered under any creditable coverage within 30 days after
birth, adoption, or placement for adoption. See also Sec. 54.9801-
3(b), under which such a child cannot be subject to a preexisting
condition exclusion.
(6) Special certification rules for entities not subject to Chapter
100 of Subtitle K--(i) Issuers. For rules requiring that issuers in the
group and individual markets provide certificates consistent with the
rules in this section, see section 701(e) of ERISA and sections
2701(e), 2721(b)(1)(B), and 2743 of the PHS Act.
(ii) Other entities. For special rules requiring that certain other
entities not subject to Chapter 100 of Subtitle K provide certificates
consistent with the rules in this section, see section 2791(a)(3) of
the PHS Act applicable to entities described in sections 2701(c)(1)(C),
(D), (E), and (F) of the PHS Act (relating to Medicare, Medicaid,
TRICARE, and Indian Health Service), section 2721(b)(1)(A) of the PHS
Act applicable to nonfederal governmental plans generally, and section
2721(b)(2)(C)(ii) of the PHS Act applicable to nonfederal governmental
plans that elect to be excluded from the requirements of Subparts 1
through 3 of Part A of Title XXVII of the PHS Act.
(b) Disclosure of coverage to a plan or issuer using the
alternative method of counting creditable coverage--(1) In general.
After an individual provides a certificate of creditable coverage to a
plan (or issuer) using the alternative method under Sec. 54.9801-4(c),
that plan (or issuer) (requesting entity) must request that the entity
that issued the certificate (prior entity) disclose the
[[Page 78758]]
information set forth in paragraph (b)(2) of this section. The prior
entity is required to disclose this information promptly.
(2) Information to be disclosed. The prior entity is required to
identify to the requesting entity the categories of benefits with
respect to which the requesting entity is using the alternative method
of counting creditable coverage, and the requesting entity may identify
specific information that the requesting entity reasonably needs in
order to determine the individual's creditable coverage with respect to
any such category.
(3) Charge for providing information. The prior entity may charge
the requesting entity for the reasonable cost of disclosing such
information.
(c) Ability of an individual to demonstrate creditable coverage and
waiting period information--(1) Purpose. The rules in this paragraph
(c) implement section 9801(c)(4), which permits individuals to
demonstrate the duration of creditable coverage through means other
than certificates, and section 9801(e)(3), which requires the Secretary
to establish rules designed to prevent an individual's subsequent
coverage under a group health plan or health insurance coverage from
being adversely affected by an entity's failure to provide a
certificate with respect to that individual.
(2) In general. If the accuracy of a certificate is contested or a
certificate is unavailable when needed by an individual, the individual
has the right to demonstrate creditable coverage (and waiting or
affiliation periods) through the presentation of documents or other
means. For example, the individual may make such a demonstration when--
(i) An entity has failed to provide a certificate within the
required time;
(ii) The individual has creditable coverage provided by an entity
that is not required to provide a certificate of the coverage pursuant
to paragraph (a) of this section;
(iii) The individual has an urgent medical condition that
necessitates a determination before the individual can deliver a
certificate to the plan; or
(iv) The individual lost a certificate that the individual had
previously received and is unable to obtain another certificate.
(3) Evidence of creditable coverage--(i) Consideration of
evidence--(A) A plan is required to take into account all information
that it obtains or that is presented on behalf of an individual to make
a determination, based on the relevant facts and circumstances, whether
an individual has creditable coverage. A plan shall treat the
individual as having furnished a certificate under paragraph (a) of
this section if--
(1) The individual attests to the period of creditable coverage;
(2) The individual also presents relevant corroborating evidence of
some creditable coverage during the period; and
(3) The individual cooperates with the plan's efforts to verify the
individual's coverage.
(B) For purposes of this paragraph (c)(3)(i), cooperation includes
providing (upon the plan's or issuer's request) a written authorization
for the plan to request a certificate on behalf of the individual, and
cooperating in efforts to determine the validity of the corroborating
evidence and the dates of creditable coverage. While a plan may refuse
to credit coverage where the individual fails to cooperate with the
plan's or issuer's efforts to verify coverage, the plan may not
consider an individual's inability to obtain a certificate to be
evidence of the absence of creditable coverage.
(ii) Documents. Documents that corroborate creditable coverage (and
waiting or affiliation periods) include explanations of benefits (EOBs)
or other correspondence from a plan or issuer indicating coverage, pay
stubs showing a payroll deduction for health coverage, a health
insurance identification card, a certificate of coverage under a group
health policy, records from medical care providers indicating health
coverage, third party statements verifying periods of coverage, and any
other relevant documents that evidence periods of health coverage.
(iii) Other evidence. Creditable coverage (and waiting or
affiliation periods) may also be corroborated through means other than
documentation, such as by a telephone call from the plan or provider to
a third party verifying creditable coverage.
(iv) Example. The rules of this paragraph (c)(3) are illustrated by
the following example:
Example. (i) Facts. Individual F terminates employment with
Employer W and, a month later, is hired by Employer X. X's group
health plan imposes a preexisting condition exclusion of 12 months
on new enrollees under the plan and uses the standard method of
determining creditable coverage. F fails to receive a certificate of
prior coverage from the self-insured group health plan maintained by
F's prior employer, W, and requests a certificate. However, F (and
X's plan, on F's behalf and with F's cooperation) is unable to
obtain a certificate from W's plan. F attests that, to the best of
F's knowledge, F had at least 12 months of continuous coverage under
W's plan, and that the coverage ended no earlier than F's
termination of employment from W. In addition, F presents evidence
of coverage, such as an explanation of benefits for a claim that was
made during the relevant period.
(ii) Conclusion. In this Example, based solely on these facts, F
has demonstrated creditable coverage for the 12 months of coverage
under W's plan in the same manner as if F had presented a written
certificate of creditable coverage.
(4) Demonstrating categories of creditable coverage. Procedures
similar to those described in this paragraph (c) apply in order to
determine the duration of an individual's creditable coverage with
respect to any category under paragraph (b) of this section (relating
to determining creditable coverage under the alternative method).
(5) Demonstrating dependent status. If, in the course of providing
evidence (including a certificate) of creditable coverage, an
individual is required to demonstrate dependent status, the group
health plan or issuer is required to treat the individual as having
furnished a certificate showing the dependent status if the individual
attests to such dependency and the period of such status and the
individual cooperates with the plan's or issuer's efforts to verify the
dependent status.
Sec. 54.9801-6 Special enrollment periods.
(a) Special enrollment for certain individuals who lose coverage--
(1) In general. A group health plan is required to permit current
employees and dependents (as defined in Sec. 54.9801-2) who are
described in paragraph (a)(2) of this section to enroll for coverage
under the terms of the plan if the conditions in paragraph (a)(3) of
this section are satisfied. The special enrollment rights under this
paragraph (a) apply without regard to the dates on which an individual
would otherwise be able to enroll under the plan. (See section
701(f)(1) of ERISA and section 2701(f)(1) of the PHS Act, under which
this obligation is also imposed on a health insurance issuer offering
group health insurance coverage.)
(2) Individuals eligible for special enrollment--(i) When employee
loses coverage. A current employee and any dependents (including the
employee's spouse) each are eligible for special enrollment in any
benefit package under the plan (subject to plan eligibility rules
conditioning dependent enrollment on enrollment of the employee) if--
(A) The employee and the dependents are otherwise eligible to
enroll in the benefit package;
(B) When coverage under the plan was previously offered, the
employee had coverage under any group health plan or health insurance
coverage; and
[[Page 78759]]
(C) The employee satisfies the conditions of paragraph (a)(3)(i),
(ii), or (iii) of this section and, if applicable, paragraph (a)(3)(iv)
of this section.
(ii) When dependent loses coverage--(A) A dependent of a current
employee (including the employee's spouse) and the employee each are
eligible for special enrollment in any benefit package under the plan
(subject to plan eligibility rules conditioning dependent enrollment on
enrollment of the employee) if--
(1) The dependent and the employee are otherwise eligible to enroll
in the benefit package;
(2) When coverage under the plan was previously offered, the
dependent had coverage under any group health plan or health insurance
coverage; and
(3) The dependent satisfies the conditions of paragraph (a)(3)(i),
(ii), or (iii) of this section and, if applicable, paragraph (a)(3)(iv)
of this section.
(B) However, the plan is not required to enroll any other dependent
unless that dependent satisfies the criteria of this paragraph
(a)(2)(ii), or the employee satisfies the criteria of paragraph
(a)(2)(i) of this section.
(iii) Examples. The rules of this paragraph (a)(2) are illustrated
by the following examples:
Example 1. (i) Facts. Individual A works for Employer X. A,A's
spouse, and A's dependent children are eligible but not enrolled for
coverage under X's group health plan. A's spouse works for Employer
Y and at the time coverage was offered under X's plan, A was
enrolled in coverage under Y's plan. Then, A loses eligibility for
coverage under Y's plan.
(ii) Conclusion. In this Example 1, because A satisfies the
conditions for special enrollment under paragraph (a)(2)(i) of this
section, A, A's spouse, and A's dependent children are eligible for
special enrollment under X's plan.
Example 2. (i) Facts. Individual A and A's spouse are eligible
but not enrolled for coverage under Group Health Plan P maintained
by A's employer. When A was first presented with an opportunity to
enroll A and A's spouse, they did not have other coverage. Later, A
and A's spouse enroll in Group Health Plan Q maintained by the
employer of A's spouse. During a subsequent open enrollment period
in P, A and A's spouse did not enroll because of their coverage
under Q. They then lose eligibility for coverage under Q.
(ii) Conclusion. In this Example 2, because A and A's spouse
were covered under Q when they did not enroll in P during open
enrollment, they satisfy the conditions for special enrollment under
paragraphs (a)(2)(i) and (ii) of this section. Consequently, A and
A's spouse are eligible for special enrollment under P.
Example 3. (i) Facts. Individual B works for Employer X. B and
B's spouse are eligible but not enrolled for coverage under X's
group health plan. B's spouse works for Employer Y and at the time
coverage was offered under X's plan, B's spouse was enrolled in
self-only coverage under Y's group health plan. Then, B's spouse
loses eligibility for coverage under Y's plan.
(ii) Conclusion. In this Example 3, because B's spouse satisfies
the conditions for special enrollment under paragraph (a)(2)(ii) of
this section, both B and B's spouse are eligible for special
enrollment under X's plan.
Example 4. (i) Facts. Individual A works for Employer X. X
maintains a group health plan with two benefit packages--an HMO
option and an indemnity option. Self-only and family coverage are
available under both options. A enrolls for self-only coverage in
the HMO option. A's spouse works for Employer Y and was enrolled for
self-only coverage under Y's plan at the time coverage was offered
under X's plan. Then, A's spouse loses coverage under Y's plan. A
requests special enrollment for A and A's spouse under the plan's
indemnity option.
(ii) Conclusion. In this Example 4, because A's spouse satisfies
the conditions for special enrollment under paragraph (a)(2)(ii) of
this section, both A and A's spouse can enroll in either benefit
package under X's plan. Therefore, if A requests enrollment in
accordance with the requirements of this section, the plan must
allow A and A's spouse to enroll in the indemnity option.
(3) Conditions for special enrollment--(i) Loss of eligibility for
coverage. In the case of an employee or dependent who has coverage that
is not COBRA continuation coverage, the conditions of this paragraph
(a)(3)(i) are satisfied at the time the coverage is terminated as a
result of loss of eligibility (regardless of whether the individual is
eligible for or elects COBRA continuation coverage). Loss of
eligibility under this paragraph (a)(3)(i) does not include a loss due
to the failure of the employee or dependent to pay premiums on a timely
basis or termination of coverage for cause (such as making a fraudulent
claim or an intentional misrepresentation of a material fact in
connection with the plan). Loss of eligibility for coverage under this
paragraph (a)(3)(i) includes (but is not limited to)--
(A) Loss of eligibility for coverage as a result of legal
separation, divorce, cessation of dependent status (such as attaining
the maximum age to be eligible as a dependent child under the plan),
death of an employee, termination of employment, reduction in the
number of hours of employment, and any loss of eligibility for coverage
after a period that is measured by reference to any of the foregoing;
(B) In the case of coverage offered through an HMO, or other
arrangement, in the individual market that does not provide benefits to
individuals who no longer reside, live, or work in a service area, loss
of coverage because an individual no longer resides, lives, or works in
the service area (whether or not within the choice of the individual);
(C) In the case of coverage offered through an HMO, or other
arrangement, in the group market that does not provide benefits to
individuals who no longer reside, live, or work in a service area, loss
of coverage because an individual no longer resides, lives, or works in
the service area (whether or not within the choice of the individual),
and no other benefit package is available to the individual;
(D) A situation in which an individual incurs a claim that would
meet or exceed a lifetime limit on all benefits; and
(E) A situation in which a plan no longer offers any benefits to
the class of similarly situated individuals (as described in Sec.
54.9802-1(d)) that includes the individual.
(ii) Termination of employer contributions. In the case of an
employee or dependent who has coverage that is not COBRA continuation
coverage, the conditions of this paragraph (a)(3)(ii) are satisfied at
the time employer contributions towards the employee's or dependent's
coverage terminate. Employer contributions include contributions by any
current or former employer that was contributing to coverage for the
employee or dependent.
(iii) Exhaustion of COBRA continuation coverage. In the case of an
employee or dependent who has coverage that is COBRA continuation
coverage, the conditions of this paragraph (a)(3)(iii) are satisfied at
the time the COBRA continuation coverage is exhausted. For purposes of
this paragraph (a)(3)(iii), an individual who satisfies the conditions
for special enrollment of paragraph (a)(3)(i) of this section, does not
enroll, and instead elects and exhausts COBRA continuation coverage
satisfies the conditions of this paragraph (a)(3)(iii). (Exhaustion of
COBRA continuation coverage is defined in Sec. 54.9801-2.)
(iv) Written statement. A plan may require an employee declining
coverage (for the employee or any dependent of the employee) to State
in writing whether the coverage is being declined due to other health
coverage only if, at or before the time the employee declines coverage,
the employee is provided with notice of the requirement to provide the
statement (and the consequences of the employee's failure to provide
the statement). If a plan requires such a statement, and an employee
does not provide it, the plan is not required to provide special
enrollment to the employee or any dependent of the
[[Page 78760]]
employee under this paragraph (a)(3). A plan must treat an employee as
having satisfied the plan requirement permitted under this paragraph
(a)(3)(iv) if the employee provides a written statement that coverage
was being declined because the employee or dependent had other
coverage; a plan cannot require anything more for the employee to
satisfy the plan's requirement to provide a written statement. (For
example, the plan cannot require that the statement be notarized.)
(v) The rules of this paragraph (a)(3) are illustrated by the
following examples:
Example 1. (i) Facts. Individual D enrolls in a group health
plan maintained by Employer Y. At the time D enrolls, Y pays 70
percent of the cost of employee coverage and D pays the rest. Y
announces that beginning January 1, Y will no longer make employer
contributions towards the coverage. Employees may maintain coverage,
however, if they pay the total cost of the coverage.
(ii) Conclusion. In this Example 1, employer contributions
towards D's coverage ceased on January 1 and the conditions of
paragraph (a)(3)(ii) of this section are satisfied on this date
(regardless of whether D elects to pay the total cost and continue
coverage under Y's plan).
Example 2. (i) Facts. A group health plan provides coverage
through two options--Option 1 and Option 2. Employees can enroll in
either option only within 30 days of hire or on January 1 of each
year. Employee A is eligible for both options and enrolls in Option
1. Effective July 1 the plan terminates coverage under Option 1 and
the plan does not create an immediate open enrollment opportunity
into Option 2.
(ii) Conclusion. In this Example 2, A has experienced a loss of
eligibility for coverage that satisfies paragraph (a)(3)(i) of this
section, and has satisfied the other conditions for special
enrollment under paragraph (a)(2)(i) of this section. Therefore, if
A satisfies the other conditions of this paragraph (a), the plan
must permit A to enroll in Option 2 as a special enrollee. (A may
also be eligible to enroll in another group health plan, such as a
plan maintained by the employer of A's spouse, as a special
enrollee.) The outcome would be the same if Option 1 was terminated
by an issuer and the plan made no other coverage available to A.
Example 3. (i) Facts. Individual C is covered under a group
health plan maintained by Employer X. While covered under X's plan,
C was eligible for but did not enroll in a plan maintained by
Employer Z, the employer of C's spouse. C terminates employment with
X and loses eligibility for coverage under X's plan. C has a special
enrollment right to enroll in Z's plan, but C instead elects COBRA
continuation coverage under X's plan. C exhausts COBRA continuation
coverage under X's plan and requests special enrollment in Z's plan.
(ii) Conclusion. In this Example 3, C has satisfied the
conditions for special enrollment under paragraph (a)(3)(iii) of
this section, and has satisfied the other conditions for special
enrollment under paragraph (a)(2)(i) of this section. The special
enrollment right that C had into Z's plan immediately after the loss
of eligibility for coverage under X's plan was an offer of coverage
under Z's plan. When C later exhausts COBRA coverage under X's plan,
C has a second special enrollment right in Z's plan.
(4) Applying for special enrollment and effective date of
coverage--(i) A plan or issuer must allow an employee a period of at
least 30 days after an event described in paragraph (a)(3) of this
section (other than an event described in paragraph (a)(3)(i)(D)) to
request enrollment (for the employee or the employee's dependent). In
the case of an event described in paragraph (a)(3)(i)(D) of this
section (relating to loss of eligibility for coverage due to the
operation of a lifetime limit on all benefits), a plan or issuer must
allow an employee a period of at least 30 days after a claim is denied
due to the operation of a lifetime limit on all benefits.
(ii) Coverage must begin no later than the first day of the first
calendar month beginning after the date the plan or issuer receives the
request for special enrollment.
(b) Special enrollment with respect to certain dependent
beneficiaries--(1) In general. A group health plan that makes coverage
available with respect to dependents is required to permit individuals
described in paragraph (b)(2) of this section to be enrolled for
coverage in a benefit package under the terms of the plan. Paragraph
(b)(3) of this section describes the required special enrollment period
and the date by which coverage must begin. The special enrollment
rights under this paragraph (b) apply without regard to the dates on
which an individual would otherwise be able to enroll under the plan.
(See 29 CFR 2590.701-6(b) and 45 CFR 146.117(b), under which this
obligation is also imposed on a health insurance issuer offering group
health insurance coverage.)
(2) Individuals eligible for special enrollment. An individual is
described in this paragraph (b)(2) if the individual is otherwise
eligible for coverage in a benefit package under the plan and if the
individual is described in paragraph (b)(2)(i), (ii), (iii), (iv), (v),
or (vi) of this section.
(i) Current employee only. A current employee is described in this
paragraph (b)(2)(i) if a person becomes a dependent of the individual
through marriage, birth, adoption, or placement for adoption.
(ii) Spouse of a participant only. An individual is described in
this paragraph (b)(2)(ii) if either--
(A) The individual becomes the spouse of a participant; or
(B) The individual is a spouse of a participant and a child becomes
a dependent of the participant through birth, adoption, or placement
for adoption.
(iii) Current employee and spouse. A current employee and an
individual who is or becomes a spouse of such an employee, are
described in this paragraph (b)(2)(iii) if either--
(A) The employee and the spouse become married; or
(B) The employee and spouse are married and a child becomes a
dependent of the employee through birth, adoption, or placement for
adoption.
(iv) Dependent of a participant only. An individual is described in
this paragraph (b)(2)(iv) if the individual is a dependent (as defined
in Sec. 54.9801-2) of a participant and the individual has become a
dependent of the participant through marriage, birth, adoption, or
placement for adoption.
(v) Current employee and a new dependent. A current employee and an
individual who is a dependent of the employee, are described in this
paragraph (b)(2)(v) if the individual becomes a dependent of the
employee through marriage, birth, adoption, or placement for adoption.
(vi) Current employee, spouse, and a new dependent. A current
employee, the employee's spouse, and the employee's dependent are
described in this paragraph (b)(2)(vi) if the dependent becomes a
dependent of the employee through marriage, birth, adoption, or
placement for adoption.
(3) Applying for special enrollment and effective date of
coverage--(i) Request. A plan must allow an individual a period of at
least 30 days after the date of the marriage, birth, adoption, or
placement for adoption (or, if dependent coverage is not generally made
available at the time of the marriage, birth, adoption, or placement
for adoption, a period of at least 30 days after the date the plan
makes dependent coverage generally available) to request enrollment
(for the individual or the individual's dependent).
(ii) Reasonable procedures for special enrollment. [Reserved]
(iii) Date coverage must begin--(A) Marriage. In the case of
marriage, coverage must begin no later than the first day of the first
calendar month beginning after the date the plan (or any issuer
offering health insurance
[[Page 78761]]
coverage under the plan) receives the request for special enrollment.
(B) Birth, adoption, or placement for adoption. Coverage must begin
in the case of a dependent's birth on the date of birth and in the case
of a dependent's adoption or placement for adoption no later than the
date of such adoption or placement for adoption (or, if dependent
coverage is not made generally available at the time of the birth,
adoption, or placement for adoption, the date the plan makes dependent
coverage available).
(4) Examples. The rules of this paragraph (b) are illustrated by
the following examples:
Example 1. (i) Facts. An employer maintains a group health plan
that offers all employees employee-only coverage, employee-plus-
spouse coverage, or family coverage. Under the terms of the plan,
any employee may elect to enroll when first hired (with coverage
beginning on the date of hire) or during an annual open enrollment
period held each December (with coverage beginning the following
January 1). Employee A is hired on September 3. A is married to B,
and they have no children. On March 15 in the following year a child
C is born to A and B. Before that date, A and B have not been
enrolled in the plan.
(ii) Conclusion. In this Example 1, the conditions for special
enrollment of an employee with a spouse and new dependent under
paragraph (b)(2)(vi) of this section are satisfied. If A satisfies
the conditions of paragraph (b)(3) of this section for requesting
enrollment timely, the plan will satisfy this paragraph (b) if it
allows A to enroll either with employee-only coverage, with
employee-plus-spouse coverage (for A and B), or with family coverage
(for A, B, and C). The plan must allow whatever coverage is chosen
to begin on March 15, the date of C's birth.
Example 2. (i) Facts. Individual D works for Employer X. X
maintains a group health plan with two benefit packages--an HMO
option and an indemnity option. Self-only and family coverage are
available under both options. D enrolls for self-only coverage in
the HMO option. Then, a child, E, is placed for adoption with D.
Within 30 days of the placement of E for adoption, D requests
enrollment for D and E under the plan's indemnity option.
(ii) Conclusion. In this Example 2, D and E satisfy the
conditions for special enrollment under paragraphs (b)(2)(v) and
(b)(3) of this section. Therefore, the plan must allow D and E to
enroll in the indemnity coverage, effective as of the date of the
placement for adoption.
(c) Notice of special enrollment. At or before the time an employee
is initially offered the opportunity to enroll in a group health plan,
the plan must furnish the employee with a notice of special enrollment
that complies with the requirements of this paragraph (c).
(1) Description of special enrollment rights. The notice of special
enrollment must include a description of special enrollment rights. The
following model language may be used to satisfy this requirement:
If you are declining enrollment for yourself or your dependents
(including your spouse) because of other health insurance or group
health plan coverage, you may be able to enroll yourself and your
dependents in this plan if you or your dependents lose eligibility
for that other coverage (or if the employer stops contributing
towards your or your dependents' other coverage). However, you must
request enrollment within [insert ``30 days'' or any longer period
that applies under the plan] after your or your dependents' other
coverage ends (or after the employer stops contributing toward the
other coverage).
In addition, if you have a new dependent as a result of
marriage, birth, adoption, or placement for adoption, you may be
able to enroll yourself and your dependents. However, you must
request enrollment within [insert ``30 days'' or any longer period
that applies under the plan] after the marriage, birth, adoption, or
placement for adoption.
To request special enrollment or obtain more information,
contact [insert the name, title, telephone number, and any
additional contact information of the appropriate plan
representative].
(2) Additional information that may be required. The notice of
special enrollment must also include, if applicable, the notice
described in paragraph (a)(3)(iv) of this section (the notice required
to be furnished to an individual declining coverage if the plan
requires the reason for declining coverage to be in writing).
(d) Treatment of special enrollees--(1) If an individual requests
enrollment while the individual is entitled to special enrollment under
either paragraph (a) or (b) of this section, the individual is a
special enrollee, even if the request for enrollment coincides with a
late enrollment opportunity under the plan. Therefore, the individual
cannot be treated as a late enrollee.
(2) Special enrollees must be offered all the benefit packages
available to similarly situated individuals who enroll when first
eligible. For this purpose, any difference in benefits or cost-sharing
requirements for different individuals constitutes a different benefit
package. In addition, a special enrollee cannot be required to pay more
for coverage than a similarly situated individual who enrolls in the
same coverage when first eligible. The length of any preexisting
condition exclusion that may be applied to a special enrollee cannot
exceed the length of any preexisting condition exclusion that is
applied to similarly situated individuals who enroll when first
eligible. For rules prohibiting the application of a preexisting
condition exclusion to certain newborns, adopted children, and children
placed for adoption, see Sec. 54.9801-3(b).
(3) The rules of this section are illustrated by the following
example:
Example 2. (i) Facts. Employer Y maintains a group health plan
that has an enrollment period for late enrollees every November 1
through November 30 with coverage effective the following January 1.
On October 18, Individual B loses coverage under another group
health plan and satisfies the requirements of paragraphs (a)(2),
(3), and (4) of this section. B submits a completed application for
coverage on November 2.
(ii) Conclusion. In this Example, B is a special enrollee.
Therefore, even though B's request for enrollment coincides with an
open enrollment period, B's coverage is required to be made
effective no later than December 1 (rather than the plan's January 1
effective date for late enrollees).
Sec. 54.9831-1 Special rules relating to group health plans.
(a) Group health plan--(1) Defined. A group health plan means a
plan (including a self-insured plan) of, or contributed to by, an
employer (including a self-employed person) or employee organization to
provide health care (directly or otherwise) to the employees, former
employees, the employer, others associated or formerly associated with
the employer in a business relationship, or their families.
(2) Determination of number of plans. [Reserved]
(b) General exception for certain small group health plans. The
requirements of Sec. Sec. 54.9801-1 through 54.9801-6, 54.9802-1,
54.9802-1T, 54.9811-1T, 54.9812-1T, and 54.9833-1 do not apply to any
group health plan for any plan year if, on the first day of the plan
year, the plan has fewer than two participants who are current
employees.
(c) Excepted benefits--(1) In general. The requirements of
Sec. Sec. 54.9801-1 through 54.9801-6, 54.9802-1, 54.9802-1T, 54.9811-
1T, 54.9812-1T, and 54.9833-1 do not apply to any group health plan in
relation to its provision of the benefits described in paragraph
(c)(2), (3), (4), or (5) of this section (or any combination of these
benefits).
(2) Benefits excepted in all circumstances. The following benefits
are excepted in all circumstances--
(i) Coverage only for accident (including accidental death and
dismemberment);
(ii) Disability income coverage;
(iii) Liability insurance, including general liability insurance
and automobile liability insurance;
(iv) Coverage issued as a supplement to liability insurance;
[[Page 78762]]
(v) Workers' compensation or similar coverage;
(vi) Automobile medical payment insurance;
(vii) Credit-only insurance (for example, mortgage insurance); and
(viii) Coverage for on-site medical clinics.
(3) Limited excepted benefits--(i) In general. Limited-scope dental
benefits, limited-scope vision benefits, or long-term care benefits are
excepted if they are provided under a separate policy, certificate, or
contract of insurance, or are otherwise not an integral part of a group
health plan as described in paragraph (c)(3)(ii) of this section. In
addition, benefits provided under a health flexible spending
arrangement are excepted benefits if they satisfy the requirements of
paragraph (c)(3)(v) of this section.
(ii) Not an integral part of a group health plan. For purposes of
this paragraph (c)(3), benefits are not an integral part of a group
health plan (whether the benefits are provided through the same plan or
a separate plan) only if the following two requirements are satisfied--
(A) Participants must have the right to elect not to receive
coverage for the benefits; and
(B) If a participant elects to receive coverage for the benefits,
the participant must pay an additional premium or contribution for that
coverage.
(iii) Limited scope--(A) Dental benefits. Limited scope dental
benefits are benefits substantially all of which are for treatment of
the mouth (including any organ or structure within the mouth).
(B) Vision benefits. Limited scope vision benefits are benefits
substantially of which are for treatment of the eye.
(iv) Long-term care. Long-term care benefits are benefits that are
either--
(A) Subject to State long-term care insurance laws;
(B) For qualified long-term care services, as defined in section
7702B(c)(1), or provided under a qualified long-term care insurance
contract, as defined in section 7702B(b); or
(C) Based on cognitive impairment or a loss of functional capacity
that is expected to be chronic.
(v) Health flexible spending arrangements. Benefits provided under
a health flexible spending arrangement (as defined in section
106(c)(2)) are excepted for a class of participants only if they
satisfy the following two requirements--
(A) Other group health plan coverage, not limited to excepted
benefits, is made available for the year to the class of participants
by reason of their employment; and
(B) The arrangement is structured so that the maximum benefit
payable to any participant in the class for a year cannot exceed two
times the participant's salary reduction election under the arrangement
for the year (or, if greater, cannot exceed $500 plus the amount of the
participant's salary reduction election). For this purpose, any amount
that an employee can elect to receive as taxable income but elects to
apply to the health flexible spending arrangement is considered a
salary reduction election (regardless of whether the amount is
characterized as salary or as a credit under the arrangement).
(4) Noncoordinated benefits--(i) Excepted benefits that are not
coordinated. Coverage for only a specified disease or illness (for
example, cancer-only policies) or hospital indemnity or other fixed
indemnity insurance is excepted only if it meets each of the conditions
specified in paragraph (c)(4)(ii) of this section. To be hospital
indemnity or other fixed indemnity insurance, the insurance must pay a
fixed dollar amount per day (or per other period) of hospitalization or
illness (for example, $100/day) regardless of the amount of expenses
incurred.
(ii) Conditions. Benefits are described in paragraph (c)(4)(i) of
this section only if--
(A) The benefits are provided under a separate policy, certificate,
or contract of insurance;
(B) There is no coordination between the provision of the benefits
and an exclusion of benefits under any group health plan maintained by
the same plan sponsor; and
(C) The benefits are paid with respect to an event without regard
to whether benefits are provided with respect to the event under any
group health plan maintained by the same plan sponsor.
(iii) Example. The rules of this paragraph (c)(4) are illustrated
by the following example:
Example. (i) Facts. An employer sponsors a group health plan
that provides coverage through an insurance policy. The policy
provides benefits only for hospital stays at a fixed percentage of
hospital expenses up to a maximum of $100 a day.
(ii) Conclusion. In this Example, even though the benefits under
the policy satisfy the conditions in paragraph (c)(4)(ii) of this
section, because the policy pays a percentage of expenses incurred
rather than a fixed dollar amount, the benefits under the policy are
not excepted benefits under this paragraph (c)(4). This is the
result even if, in practice, the policy pays the maximum of $100 for
every day of hospitalization.
(5) Supplemental benefits. (i) The following benefits are excepted
only if they are provided under a separate policy, certificate, or
contract of insurance--
(A) Medicare supplemental health insurance (as defined under
section 1882(g)(1) of the Social Security Act; also known as Medigap or
MedSupp insurance);
(B) Coverage supplemental to the coverage provided under Chapter
55, Title 10 of the United States Code (also known as TRICARE
supplemental programs); and
(C) Similar supplemental coverage provided to coverage under a
group health plan. To be similar supplemental coverage, the coverage
must be specifically designed to fill gaps in primary coverage, such as
coinsurance or deductibles. Similar supplemental coverage does not
include coverage that becomes secondary or supplemental only under a
coordination-of-benefits provision.
(ii) The rules of this paragraph (c)(5) are illustrated by the
following example:
Example. (i) Facts. An employer sponsors a group health plan
that provides coverage for both active employees and retirees. The
coverage for retirees supplements benefits provided by Medicare, but
does not meet the requirements for a supplemental policy under
section 1882(g)(1) of the Social Security Act.
(ii) Conclusion. In this Example, the coverage provided to
retirees does not meet the definition of supplemental excepted
benefits under this paragraph (c)(5) because the coverage is not
Medicare supplemental insurance as defined under section 1882(g)(1)
of the Social Security Act, is not a TRICARE supplemental program,
and is not supplemental to coverage provided under a group health
plan.
(d) Treatment of partnerships. For purposes of this part:
(1) Treatment as a group health plan. (See 29 CFR 2590.732(d)(1)
and 45 CFR 146.145(d)(1), under which a plan providing medical care,
maintained by a partnership, and usually not treated as an employee
welfare benefit plan under ERISA is treated as a group health plan for
purposes of Part 7 of Subtitle B of Title I of ERISA and Title XXVII of
the PHS Act.)
(2) Employment relationship. In the case of a group health plan,
the term employer also includes the partnership in relation to any bona
fide partner. In addition, the term employee also includes any bona
fide partner. Whether or not an individual is a bona fide partner is
determined based on all the relevant facts and circumstances, including
whether the individual performs services on behalf of the partnership.
[[Page 78763]]
(3) Participants of group health plans. In the case of a group
health plan, the term participant also includes any individual
described in paragraph (d)(3)(i) or (ii) of this section if the
individual is, or may become, eligible to receive a benefit under the
plan or the individual's beneficiaries may be eligible to receive any
such benefit.
(i) In connection with a group health plan maintained by a
partnership, the individual is a partner in relation to the
partnership.
(ii) In connection with a group health plan maintained by a self-
employed individual (under which one or more employees are
participants), the individual is the self-employed individual.
(e) Determining the average number of employees. [Reserved]
Sec. 54.9833-1 Effective dates.
Sections 54.9801-1 through 54.9801-6, 54.9831-1, and this section
are applicable for plan years beginning on or after July 1, 2005.
PART 602--OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT
0
Par. 4. The authority citation for part 602 continues to read as
follows:
Authority: 26 U.S.C. 7805.
0
Par. 5. In Sec. 602.101, paragraph (b) is amended by:
0
a. Removing the entries in the table for Sec. Sec. 54.9801-3T,
54.9801-4T, 54.9801-5T, and 54.9801-6T.
0
b. Adding the following entries in numerical order to the table:
Sec. 602.101 OMB Control numbers.
* * * * *
(b) * * *
------------------------------------------------------------------------
Current OMB
CFR part or section where identified and described control No.
------------------------------------------------------------------------
* * * * *
54.9801-3.............................................. 1545-1537
54.9801-4.............................................. 1545-1537
54.9801-5.............................................. 1545-1537
54.9801-6.............................................. 1545-1537
* * * * *
------------------------------------------------------------------------
Mark E. Matthews,
Deputy Commissioner for Services and Enforcement, Internal Revenue
Service.
Approved: July 14, 2004.
Gregory F. Jenner,
Acting Assistant Secretary of the Treasury.
Employee Benefits Security Administration
29 CFR Chapter XXV
0
For the reasons set forth above, Chapter XXV of Title 29 of the Code of
Federal Regulations is amended as set forth below:
PART 2590--RULES AND REGULATIONS FOR GROUP HEALTH PLANS
0
1. The authority citation for Part 2590 is revised to read as follows:
Authority: 29 U.S.C. 1027, 1059, 1135, 1161-1168, 1169, 1181-
1183, 1181 note, 1185, 1185a, 1185b, 1191, 1191a, 1191b, and 1191c,
sec. 101(g), Public Law 104-191, 101 Stat. 1936; sec. 401(b), Public
Law 105-200, 112 Stat. 645 (42 U.S.C. 651 note); Secretary of
Labor's Order 1-2003, 68 FR 5374 (Feb. 3, 2003).
0
2. The heading for Subpart B is revised to read as follows:
Subpart B--Health Coverage Portability, Nondiscrimination, and
Renewability
0
3. Sections 2590.701-1, 2590.701-2, 2590.701-3, 2590.701-4, 2590.701-5,
2590.701-6, and 2590.701-7 are revised to read as follows:
Sec. 2590.701-1 Basis and scope.
(a) Statutory basis. This Subpart B implements Part 7 of Subtitle B
of Title I of the Employee Retirement Income Security Act of 1974, as
amended (hereinafter ERISA or the Act).
(b) Scope. A group health plan or health insurance issuer offering
group health insurance coverage may provide greater rights to
participants and beneficiaries than those set forth in this Subpart B.
This Subpart B sets forth minimum requirements for group health plans
and health insurance issuers offering group health insurance coverage
concerning:
(1) Limitations on a preexisting condition exclusion period.
(2) Certificates and disclosure of previous coverage.
(3) Rules relating to counting creditable coverage.
(4) Special enrollment periods.
(5) Prohibition against discrimination on the basis of health
factors.
(6) Use of an affiliation period by an HMO as an alternative to a
preexisting condition exclusion.
Sec. 2590.701-2 Definitions.
Unless otherwise provided, the definitions in this section govern
in applying the provisions of Sec. Sec. 2590.701 through 2590.734.
Affiliation period means a period of time that must expire before
health insurance coverage provided by an HMO becomes effective, and
during which the HMO is not required to provide benefits.
COBRA definitions:
(1) COBRA means Title X of the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended.
(2) COBRA continuation coverage means coverage, under a group
health plan, that satisfies an applicable COBRA continuation provision.
(3) COBRA continuation provision means sections 601-608 of the Act,
section 4980B of the Internal Revenue Code (other than paragraph (f)(1)
of such section 4980B insofar as it relates to pediatric vaccines), or
Title XXII of the PHS Act.
(4) Exhaustion of COBRA continuation coverage means that an
individual's COBRA continuation coverage ceases for any reason other
than either failure of the individual to pay premiums on a timely
basis, or for cause (such as making a fraudulent claim or an
intentional misrepresentation of a material fact in connection with the
plan). An individual is considered to have exhausted COBRA continuation
coverage if such coverage ceases--
(i) Due to the failure of the employer or other responsible entity
to remit premiums on a timely basis;
(ii) When the individual no longer resides, lives, or works in the
service area of an HMO or similar program (whether or not within the
choice of the individual) and there is no other COBRA continuation
coverage available to the individual; or
(iii) When the individual incurs a claim that would meet or exceed
a lifetime limit on all benefits and there is no other COBRA
continuation coverage available to the individual.
Condition means a medical condition.
Creditable coverage means creditable coverage within the meaning of
Sec. 2590.701-4(a).
Dependent means any individual who is or may become eligible for
coverage under the terms of a group health plan because of a
relationship to a participant.
Enroll means to become covered for benefits under a group health
plan (that is, when coverage becomes effective), without regard to when
the individual may have completed or filed any forms that are required
in order to become covered under the plan. For this purpose, an
individual who has health coverage under a group health plan is
enrolled in the plan regardless of whether the individual elects
coverage, the individual is a dependent who becomes covered as a result
of an election by a participant, or the individual becomes covered
without an election.
Enrollment date definitions (enrollment date, first day of
coverage,
[[Page 78764]]
and waiting period) are set forth in Sec. 2590.701-3(a)(3)(i), (ii),
and (iii).
Excepted benefits means the benefits described as excepted in Sec.
2590.732(c).
Genetic information means information about genes, gene products,
and inherited characteristics that may derive from the individual or a
family member. This includes information regarding carrier status and
information derived from laboratory tests that identify mutations in
specific genes or chromosomes, physical medical examinations, family
histories, and direct analysis of genes or chromosomes.
Group health insurance coverage means health insurance coverage
offered in connection with a group health plan.
Group health plan or plan means a group health plan within the
meaning of Sec. 2590.732(a).
Group market means the market for health insurance coverage offered
in connection with a group health plan. (However, certain very small
plans may be treated as being in the individual market, rather than the
group market; see the definition of individual market in this section.)
Health insurance coverage means benefits consisting of medical care
(provided directly, through insurance or reimbursement, or otherwise)
under any hospital or medical service policy or certificate, hospital
or medical service plan contract, or HMO contract offered by a health
insurance issuer. Health insurance coverage includes group health
insurance coverage, individual health insurance coverage, and short-
term, limited-duration insurance.
Health insurance issuer or issuer means an insurance company,
insurance service, or insurance organization (including an HMO) that is
required to be licensed to engage in the business of insurance in a
State and that is subject to State law that regulates insurance (within
the meaning of section 514(b)(2) of the Act). Such term does not
include a group health plan.
Health maintenance organization or HMO means--
(1) A federally qualified health maintenance organization (as
defined in section 1301(a) of the PHS Act);
(2) An organization recognized under State law as a health
maintenance organization; or
(3) A similar organization regulated under State law for solvency
in the same manner and to the same extent as such a health maintenance
organization.
Individual health insurance coverage means health insurance
coverage offered to individuals in the individual market, but does not
include short-term, limited-duration insurance. Individual health
insurance coverage can include dependent coverage.
Individual market means the market for health insurance coverage
offered to individuals other than in connection with a group health
plan. Unless a State elects otherwise in accordance with section
2791(e)(1)(B)(ii) of the PHS Act, such term also includes coverage
offered in connection with a group health plan that has fewer than two
participants who are current employees on the first day of the plan
year.
Internal Revenue Code means the Internal Revenue Code of 1986, as
amended (Title 26, United States Code).
Issuer means a health insurance issuer.
Late enrollment definitions (late enrollee and late enrollment) are
set forth in Sec. 2590.701-3(a)(3)(v) and (vi).
Medical care means amounts paid for--
(1) The diagnosis, cure, mitigation, treatment, or prevention of
disease, or amounts paid for the purpose of affecting any structure or
function of the body;
(2) Transportation primarily for and essential to medical care
referred to in paragraph (1) of this definition; and
(3) Insurance covering medical care referred to in paragraphs (1)
and (2) of this definition.
Medical condition or condition means any condition, whether
physical or mental, including, but not limited to, any condition
resulting from illness, injury (whether or not the injury is
accidental), pregnancy, or congenital malformation. However, genetic
information is not a condition.
Participant means participant within the meaning of section 3(7) of
the Act.
Placement, or being placed, for adoption means the assumption and
retention of a legal obligation for total or partial support of a child
by a person with whom the child has been placed in anticipation of the
child's adoption. The child's placement for adoption with such person
ends upon the termination of such legal obligation.
Plan year means the year that is designated as the plan year in the
plan document of a group health plan, except that if the plan document
does not designate a plan year or if there is no plan document, the
plan year is--
(1) The deductible or limit year used under the plan;
(2) If the plan does not impose deductibles or limits on a yearly
basis, then the plan year is the policy year;
(3) If the plan does not impose deductibles or limits on a yearly
basis, and either the plan is not insured or the insurance policy is
not renewed on an annual basis, then the plan year is the employer's
taxable year; or
(4) In any other case, the plan year is the calendar year.
Preexisting condition exclusion means preexisting condition
exclusion within the meaning of Sec. 2590.701-3(a)(1).
Public health plan means public health plan within the meaning of
Sec. 2590.701-4(a)(1)(ix).
Public Health Service Act (PHS Act) means the Public Health Service
Act (42 U.S.C. 201, et seq.).
Short-term, limited-duration insurance means health insurance
coverage provided pursuant to a contract with an issuer that has an
expiration date specified in the contract (taking into account any
extensions that may be elected by the policyholder without the issuer's
consent) that is less than 12 months after the original effective date
of the contract.
Significant break in coverage means a significant break in coverage
within the meaning of Sec. 2590.701-4(b)(2)(iii).
Special enrollment means enrollment in a group health plan or group
health insurance coverage under the rights described in Sec. 2590.701-
6.
State means each of the several States, the District of Columbia,
Puerto Rico, the Virgin Islands, Guam, American Samoa, and the Northern
Mariana Islands.
State health benefits risk pool means a State health benefits risk
pool within the meaning of Sec. 2590.701-4(a)(1)(vii).
Waiting period means waiting period within the meaning of Sec.
2590.701-3(a)(3)(iii).
Sec. 2590.701-3 Limitations on preexisting condition exclusion
period.
(a) Preexisting condition exclusion--(1) Defined--(i) A preexisting
condition exclusion means a limitation or exclusion of benefits
relating to a condition based on the fact that the condition was
present before the effective date of coverage under a group health plan
or group health insurance coverage, whether or not any medical advice,
diagnosis, care, or treatment was recommended or received before that
day. A preexisting condition exclusion includes any exclusion
applicable to an individual as a result of information relating to an
individual's health status before the individual's effective date of
coverage under a group health plan or group health insurance coverage,
such as a condition identified as a result of a pre-enrollment
questionnaire or physical examination given to the individual, or
review of medical records relating to the pre-enrollment period.
(ii) Examples. The rules of this paragraph (a)(1) are illustrated
by the following examples:
[[Page 78765]]
Example 1. (i) Facts. A group health plan provides benefits
solely through an insurance policy offered by Issuer S. At the
expiration of the policy, the plan switches coverage to a policy
offered by Issuer T. Issuer T's policy excludes benefits for any
prosthesis if the body part was lost before the effective date of
coverage under the policy.
(ii) Conclusion. In this Example 1, the exclusion of benefits
for any prosthesis if the body part was lost before the effective
date of coverage is a preexisting condition exclusion because it
operates to exclude benefits for a condition based on the fact that
the condition was present before the effective date of coverage
under the policy. (Therefore, the exclusion of benefits is required
to comply with the limitations on preexisting condition exclusions
in this section. For an example illustrating the application of
these limitations to a succeeding insurance policy, see Example 3 of
paragraph (a)(3)(iv) of this section.)
Example 2. (i) Facts. A group health plan provides coverage for
cosmetic surgery in cases of accidental injury, but only if the
injury occurred while the individual was covered under the plan.
(ii) Conclusion. In this Example 2, the plan provision excluding
cosmetic surgery benefits for individuals injured before enrolling
in the plan is a preexisting condition exclusion because it operates
to exclude benefits relating to a condition based on the fact that
the condition was present before the effective date of coverage. The
plan provision, therefore, is subject to the limitations on
preexisting condition exclusions in this section.
Example 3. (i) Facts. A group health plan provides coverage for
the treatment of diabetes, generally not subject to any lifetime
dollar limit. However, if an individual was diagnosed with diabetes
before the effective date of coverage under the plan, diabetes
coverage is subject to a lifetime limit of $10,000.
(ii) Conclusion. In this Example 3, the $10,000 lifetime limit
is a preexisting condition exclusion because it limits benefits for
a condition based on the fact that the condition was present before
the effective date of coverage. The plan provision, therefore, is
subject to the limitations on preexisting condition exclusions in
this section.
Example 4. (i) Facts. A group health plan provides coverage for
the treatment of acne, subject to a lifetime limit of $2,000. The
plan counts against this $2,000 lifetime limit acne treatment
benefits provided under prior health coverage.
(ii) Conclusion. In this Example 4, counting benefits for a
specific condition provided under prior health coverage against a
lifetime limit for that condition is a preexisting condition
exclusion because it operates to limit benefits for a condition
based on the fact that the condition was present before the
effective date of coverage. The plan provision, therefore, is
subject to the limitations on preexisting condition exclusions in
this section.
Example 5. (i) Facts. When an individual's coverage begins under
a group health plan, the individual generally becomes eligible for
all benefits. However, benefits for pregnancy are not available
until the individual has been covered under the plan for 12 months.
(ii) Conclusion. In this Example 5, the requirement to be
covered under the plan for 12 months to be eligible for pregnancy
benefits is a subterfuge for a preexisting condition exclusion
because it is designed to exclude benefits for a condition
(pregnancy) that arose before the effective date of coverage.
Because a plan is prohibited under paragraph (b)(5) of this section
from imposing any preexisting condition exclusion on pregnancy, the
plan provision is prohibited. However, if the plan provision
included an exception for women who were pregnant before the
effective date of coverage under the plan (so that the provision
applied only to women who became pregnant on or after the effective
date of coverage) the plan provision would not be a preexisting
condition exclusion (and would not be prohibited by paragraph (b)(5)
of this section).
Example 6. (i) Facts. A group health plan provides coverage for
medically necessary items and services, generally including
treatment of heart conditions. However, the plan does not cover
those same items and services when used for treatment of congenital
heart conditions.
(ii) Conclusion. In this Example 6, the exclusion of coverage
for treatment of congenital heart conditions is a preexisting
condition exclusion because it operates to exclude benefits relating
to a condition based on the fact that the condition was present
before the effective date of coverage. The plan provision,
therefore, is subject to the limitations on preexisting condition
exclusions in this section.
Example 7. (i) Facts. A group health plan generally provides
coverage for medically necessary items and services. However, the
plan excludes coverage for the treatment of cleft palate.
(ii) Conclusion. In this Example 7, the exclusion of coverage
for treatment of cleft palate is not a preexisting condition
exclusion because the exclusion applies regardless of when the
condition arose relative to the effective date of coverage. The plan
provision, therefore, is not subject to the limitations on
preexisting condition exclusions in this section.
Example 8. (i) Facts. A group health plan provides coverage for
treatment of cleft palate, but only if the individual being treated
has been continuously covered under the plan from the date of birth.
(ii) Conclusion. In this Example 8, the exclusion of coverage
for treatment of cleft palate for individuals who have not been
covered under the plan from the date of birth operates to exclude
benefits in relation to a condition based on the fact that the
condition was present before the effective date of coverage. The
plan provision, therefore, is subject to the limitations on
preexisting condition exclusions in this section.
(2) General rules. Subject to paragraph (b) of this section
(prohibiting the imposition of a preexisting condition exclusion with
respect to certain individuals and conditions), a group health plan,
and a health insurance issuer offering group health insurance coverage,
may impose, with respect to a participant or beneficiary, a preexisting
condition exclusion only if the requirements of this paragraph (a)(2)
are satisfied.
(i) 6-month look-back rule. A preexisting condition exclusion must
relate to a condition (whether physical or mental), regardless of the
cause of the condition, for which medical advice, diagnosis, care, or
treatment was recommended or received within the 6-month period (or
such shorter period as applies under the plan) ending on the enrollment
date.
(A) For purposes of this paragraph (a)(2)(i), medical advice,
diagnosis, care, or treatment is taken into account only if it is
recommended by, or received from, an individual licensed or similarly
authorized to provide such services under State law and operating
within the scope of practice authorized by State law.
(B) For purposes of this paragraph (a)(2)(i), the 6-month period
ending on the enrollment date begins on the 6-month anniversary date
preceding the enrollment date. For example, for an enrollment date of
August 1, 1998, the 6-month period preceding the enrollment date is the
period commencing on February 1, 1998 and continuing through July 31,
1998. As another example, for an enrollment date of August 30, 1998,
the 6-month period preceding the enrollment date is the period
commencing on February 28, 1998 and continuing through August 29, 1998.
(C) The rules of this paragraph (a)(2)(i) are illustrated by the
following examples:
Example 1. (i) Facts. Individual A is diagnosed with a medical
condition 8 months before A's enrollment date in Employer R's group
health plan. A's doctor recommends that A take a prescription drug
for 3 months, and A follows the recommendation.
(ii) Conclusion. In this Example 1, Employer R's plan may impose
a preexisting condition exclusion with respect to A's condition
because A received treatment during the 6-month period ending on A's
enrollment date in Employer R's plan by taking the prescription
medication during that period. However, if A did not take the
prescription drug during the 6-month period, Employer R's plan would
not be able to impose a preexisting condition exclusion with respect
to that condition.
Example 2. (i) Facts. Individual B is treated for a medical
condition 7 months before the enrollment date in Employer S's group
health plan. As part of such treatment, B's physician recommends
that a follow-up examination be given 2 months later. Despite this
recommendation, B does not receive a
[[Page 78766]]
follow-up examination, and no other medical advice, diagnosis, care,
or treatment for that condition is recommended to B or received by B
during the 6-month period ending on B's enrollment date in Employer
S's plan.
(ii) Conclusion. In this Example 2, Employer S's plan may not
impose a preexisting condition exclusion with respect to the
condition for which B received treatment 7 months prior to the
enrollment date.
Example 3. (i) Facts. Same facts as Example 2, except that
Employer S's plan learns of the condition and attaches a rider to
B's certificate of coverage excluding coverage for the condition.
Three months after enrollment, B's condition recurs, and Employer
S's plan denies payment under the rider.
(ii) Conclusion. In this Example 3, the rider is a preexisting
condition exclusion and Employer S's plan may not impose a
preexisting condition exclusion with respect to the condition for
which B received treatment 7 months prior to the enrollment date.
(In addition, such a rider would violate the provisions of Sec.
2590.702, even if B had received treatment for the condition within
the 6-month period ending on the enrollment date.)
Example 4. (i) Facts. Individual C has asthma and is treated for
that condition several times during the 6-month period before C's
enrollment date in Employer T's plan. Three months after the
enrollment date, C begins coverage under Employer T's plan. Two
months later, C is hospitalized for asthma.
(ii) Conclusion. In this Example 4, Employer T's plan may impose
a preexisting condition exclusion with respect to C's asthma because
care relating to C's asthma was received during the 6-month period
ending on C's enrollment date (which, under the rules of paragraph
(a)(3)(i) of this section, is the first day of the waiting period).
Example 5. (i) Facts. Individual D, who is subject to a
preexisting condition exclusion imposed by Employer U's plan, has
diabetes, as well as retinal degeneration, a foot condition, and
poor circulation (all of which are conditions that may be directly
attributed to diabetes). D receives treatment for these conditions
during the 6-month period ending on D's enrollment date in Employer
U's plan. After enrolling in the plan, D stumbles and breaks a leg.
(ii) Conclusion. In this Example 5, the leg fracture is not a
condition related to D's diabetes, retinal degeneration, foot
condition, or poor circulation, even though they may have
contributed to the accident. Therefore, benefits to treat the leg
fracture cannot be subject to a preexisting condition exclusion.
However, any additional medical services that may be needed because
of D's preexisting diabetes, poor circulation, or retinal
degeneration that would not be needed by another patient with a
broken leg who does not have these conditions may be subject to the
preexisting condition exclusion imposed under Employer U's plan.
(ii) Maximum length of preexisting condition exclusion. A
preexisting condition exclusion is not permitted to extend for more
than 12 months (18 months in the case of a late enrollee) after the
enrollment date. For example, for an enrollment date of August 1, 1998,
the 12-month period after the enrollment date is the period commencing
on August 1, 1998 and continuing through July 31, 1999; the 18-month
period after the enrollment date is the period commencing on August 1,
1998 and continuing through January 31, 2000.
(iii) Reducing a preexisting condition exclusion period by
creditable coverage--(A) The period of any preexisting condition
exclusion that would otherwise apply to an individual under a group
health plan is reduced by the number of days of creditable coverage the
individual has as of the enrollment date, as counted under Sec.
2590.701-4. Creditable coverage may be evidenced through a certificate
of creditable coverage (required under Sec. 2590.701-5(a)), or through
other means in accordance with the rules of Sec. 2590.701-5(c).
(B) The rules of this paragraph (a)(2)(iii) are illustrated by the
following example:
Example. (i) Facts. Individual D works for Employer X and has
been covered continuously under X's group health plan. D's spouse
works for Employer Y. Y maintains a group health plan that imposes a
12-month preexisting condition exclusion (reduced by creditable
coverage) on all new enrollees. D enrolls in Y's plan, but also
stays covered under X's plan. D presents Y's plan with evidence of
creditable coverage under X's plan.
(ii) Conclusion. In this Example, Y's plan must reduce the
preexisting condition exclusion period that applies to D by the
number of days of coverage that D had under X's plan as of D's
enrollment date in Y's plan (even though D's coverage under X's plan
was continuing as of that date).
(iv) Other standards. See Sec. 2590.702 for other standards in
this Subpart B that may apply with respect to certain benefit
limitations or restrictions under a group health plan. Other laws may
also apply, such as the Uniformed Services Employment and Reemployment
Rights Act (USERRA), which can affect the application of a preexisting
condition exclusion to certain individuals who are reinstated in a
group health plan following active military service.
(3) Enrollment definitions--(i) Enrollment date means the first day
of coverage (as described in paragraph (a)(3)(ii) of this section) or,
if there is a waiting period, the first day of the waiting period. If
an individual receiving benefits under a group health plan changes
benefit packages, or if the plan changes group health insurance
issuers, the individual's enrollment date does not change.
(ii) First day of coverage means, in the case of an individual
covered for benefits under a group health plan, the first day of
coverage under the plan and, in the case of an individual covered by
health insurance coverage in the individual market, the first day of
coverage under the policy or contract.
(iii) Waiting period means the period that must pass before
coverage for an employee or dependent who is otherwise eligible to
enroll under the terms of a group health plan can become effective. If
an employee or dependent enrolls as a late enrollee or special
enrollee, any period before such late or special enrollment is not a
waiting period. If an individual seeks coverage in the individual
market, a waiting period begins on the date the individual submits a
substantially complete application for coverage and ends on--
(A) If the application results in coverage, the date coverage
begins;
(B) If the application does not result in coverage, the date on
which the application is denied by the issuer or the date on which the
offer of coverage lapses.
(iv) The rules of paragraphs (a)(3)(i), (ii), and (iii) of this
section are illustrated by the following examples:
Example 1. (i) Facts. Employer V's group health plan provides
for coverage to begin on the first day of the first payroll period
following the date an employee is hired and completes the applicable
enrollment forms, or on any subsequent January 1 after completion of
the applicable enrollment forms. Employer V's plan imposes a
preexisting condition exclusion for 12 months (reduced by the
individual's creditable coverage) following an individual's
enrollment date. Employee E is hired by Employer V on October 13,
1998 and on October 14, 1998 E completes and files all the forms
necessary to enroll in the plan. E's coverage under the plan becomes
effective on October 25, 1998 (which is the beginning of the first
payroll period after E's date of hire).
(ii) Conclusion. In this Example 1, E's enrollment date is
October 13, 1998 (which is the first day of the waiting period for
E's enrollment and is also E's date of hire). Accordingly, with
respect to E, the permissible 6-month period in paragraph (a)(2)(i)
is the period from April 13, 1998 through October 12, 1998, the
maximum permissible period during which Employer V's plan can apply
a preexisting condition exclusion under paragraph (a)(2)(ii) is the
period from October 13, 1998 through October 12, 1999, and this
period must be reduced under paragraph (a)(2)(iii) by E's days of
creditable coverage as of October 13, 1998.
Example 2. (i) Facts. A group health plan has two benefit
package options, Option 1 and Option 2. Under each option a 12-month
[[Page 78767]]
preexisting condition exclusion is imposed. Individual B is enrolled
in Option 1 on the first day of employment with the employer
maintaining the plan, remains enrolled in Option 1 for more than one
year, and then decides to switch to Option 2 at open season.
(ii) Conclusion. In this Example 2, B cannot be subject to any
preexisting condition exclusion under Option 2 because any
preexisting condition exclusion period would have to begin on B's
enrollment date, which is B's first day of coverage, rather than the
date that B enrolled in Option 2. Therefore, the preexisting
condition exclusion period expired before B switched to Option 2.
Example 3. (i) Facts. On May 13, 1997, Individual E is hired by
an employer and enrolls in the employer's group health plan. The
plan provides benefits solely through an insurance policy offered by
Issuer S. On December 27, 1998, E's leg is injured in an accident
and the leg is amputated. On January 1, 1999, the plan switches
coverage to a policy offered by Issuer T. Issuer T's policy excludes
benefits for any prosthesis if the body part was lost before the
effective date of coverage under the policy.
(ii) Conclusion. In this Example 3, E's enrollment date is May
13, 1997, E's first day of coverage. Therefore, the permissible 6-
month look-back period for the preexisting condition exclusion
imposed under Issuer T's policy begins on November 13, 1996 and ends
on May 12, 1997. In addition, the 12-month maximum permissible
preexisting condition exclusion period begins on May 13, 1997 and
ends on May 12, 1998. Accordingly, because no medical advice,
diagnosis, care, or treatment was recommended to or received by E
for the leg during the 6-month look-back period (even though medical
care was provided within the 6-month period preceding the effective
date of E's coverage under Issuer T's policy), Issuer T may not
impose any preexisting condition exclusion with respect to E.
Moreover, even if E had received treatment during the 6-month look-
back period, Issuer T still would not be permitted to impose a
preexisting condition exclusion because the 12-month maximum
permissible preexisting condition exclusion period expired on May
12, 1998 (before the effective date of E's coverage under Issuer T's
policy).
Example 4. (i) Facts. A group health plan limits eligibility for
coverage to full-time employees of Employer Y. Coverage becomes
effective on the first day of the month following the date the
employee becomes eligible. Employee C begins working full-time for
Employer Y on April 11. Prior to this date, C worked part-time for
Y. C enrolls in the plan and coverage is effective May 1.
(ii) Conclusion. In this Example 4, C's enrollment date is April
11 and the period from April 11 through April 30 is a waiting
period. The period while C was working part-time, and therefore not
in an eligible class of employees, is not part of the waiting
period.
Example 5. (i) Facts. To be eligible for coverage under a
multiemployer group health plan in the current calendar quarter, the
plan requires an individual to have worked 250 hours in covered
employment during the previous quarter. If the hours requirement is
satisfied, coverage becomes effective on the first day of the
current calendar quarter. Employee D begins work on January 28 and
does not work 250 hours in covered employment during the first
quarter (ending March 31). D works at least 250 hours in the second
quarter (ending June 30) and is enrolled in the plan with coverage
effective July 1 (the first day of the third quarter).
(ii) Conclusion. In this Example 5, D's enrollment date is the
first day of the quarter during which D satisfies the hours
requirement, which is April 1. The period from April 1 through June
30 is a waiting period.
(v) Late enrollee means an individual whose enrollment in a plan is
a late enrollment.
(vi) (A) Late enrollment means enrollment of an individual under a
group health plan other than--
(1) On the earliest date on which coverage can become effective for
the individual under the terms of the plan; or
(2) Through special enrollment. (For rules relating to special
enrollment, see Sec. 2590.701-6.)
(B) If an individual ceases to be eligible for coverage under the
plan, and then subsequently becomes eligible for coverage under the
plan, only the individual's most recent period of eligibility is taken
into account in determining whether the individual is a late enrollee
under the plan with respect to the most recent period of coverage.
Similar rules apply if an individual again becomes eligible for
coverage following a suspension of coverage that applied generally
under the plan.
(vii) Examples. The rules of paragraphs (a)(3)(v) and (vi) of this
section are illustrated by the following examples:
Example 1. (i) Facts. Employee F first becomes eligible to be
covered by Employer W's group health plan on January 1, 1999 but
elects not to enroll in the plan until a later annual open
enrollment period, with coverage effective January 1, 2001. F has no
special enrollment right at that time.
(ii) Conclusion. In this Example 1, F is a late enrollee with
respect to F's coverage that became effective under the plan on
January 1, 2001.
Example 2. (i) Facts. Same facts as Example 1, except that F
terminates employment with Employer W on July 1, 1999 without having
had any health insurance coverage under the plan. F is rehired by
Employer W on January 1, 2000 and is eligible for and elects
coverage under Employer W's plan effective on January 1, 2000.
(ii) Conclusion. In this Example 2, F would not be a late
enrollee with respect to F's coverage that became effective on
January 1, 2000.
(b) Exceptions pertaining to preexisting condition exclusions--(1)
Newborns--(i) In general. Subject to paragraph (b)(3) of this section,
a group health plan, and a health insurance issuer offering group
health insurance coverage, may not impose any preexisting condition
exclusion on a child who, within 30 days after birth, is covered under
any creditable coverage. Accordingly, if a child is enrolled in a group
health plan (or other creditable coverage) within 30 days after birth
and subsequently enrolls in another group health plan without a
significant break in coverage (as described in Sec. 2590.701-
4(b)(2)(iii)), the other plan may not impose any preexisting condition
exclusion on the child.
(ii) Examples. The rules of this paragraph (b)(1) are illustrated
by the following examples:
Example 1. (i) Facts. Individual E, who has no prior creditable
coverage, begins working for Employer W and has accumulated 210 days
of creditable coverage under Employer W's group health plan on the
date E gives birth to a child. Within 30 days after the birth, the
child is enrolled in the plan. Ninety days after the birth, both E
and the child terminate coverage under the plan. Both E and the
child then experience a break in coverage of 45 days before E is
hired by Employer X and the two are enrolled in Employer X's group
health plan.
(ii) Conclusion. In this Example 1, because E's child is
enrolled in Employer W's plan within 30 days after birth, no
preexisting condition exclusion may be imposed with respect to the
child under Employer W's plan. Likewise, Employer X's plan may not
impose any preexisting condition exclusion on E's child because the
child was covered under creditable coverage within 30 days after
birth and had no significant break in coverage before enrolling in
Employer X's plan. On the other hand, because E had only 300 days of
creditable coverage prior to E's enrollment date in Employer X's
plan, Employer X's plan may impose a preexisting condition exclusion
on E for up to 65 days (66 days if the 12-month period after E's
enrollment date in X's plan includes February 29).
Example 2. (i) Facts. Individual F is enrolled in a group health
plan in which coverage is provided through a health insurance
issuer. F gives birth. Under State law applicable to the health
insurance issuer, health care expenses incurred for the child during
the 30 days following birth are covered as part of F's coverage.
Although F may obtain coverage for the child beyond 30 days by
timely requesting special enrollment and paying an additional
premium, the issuer is prohibited under State law from recouping the
cost of any expenses incurred for the child within the 30-day period
if the child is not later enrolled.
(ii) Conclusion. In this Example 2, the child is covered under
creditable coverage within 30 days after birth, regardless of
whether the child enrolls as a special enrollee under the plan.
Therefore, no preexisting condition exclusion may be imposed on the
child unless the child has a significant break in coverage.
[[Page 78768]]
(2) Adopted children. Subject to paragraph (b)(3) of this section,
a group health plan, and a health insurance issuer offering group
health insurance coverage, may not impose any preexisting condition
exclusion on a child who is adopted or placed for adoption before
attaining 18 years of age and who, within 30 days after the adoption or
placement for adoption, is covered under any creditable coverage.
Accordingly, if a child is enrolled in a group health plan (or other
creditable coverage) within 30 days after adoption or placement for
adoption and subsequently enrolls in another group health plan without
a significant break in coverage (as described in Sec. 2590.701-
4(b)(2)(iii)), the other plan may not impose any preexisting condition
exclusion on the child. This rule does not apply to coverage before the
date of such adoption or placement for adoption.
(3) Significant break in coverage. Paragraphs (b)(1) and (2) of
this section no longer apply to a child after a significant break in
coverage. (See Sec. 2590.701-4(b)(2)(iii) for rules relating to the
determination of a significant break in coverage.)
(4) Special enrollment. For special enrollment rules relating to
new dependents, see Sec. 2590.701-6(b).
(5) Pregnancy. A group health plan, and a health insurance issuer
offering group health insurance coverage, may not impose a preexisting
condition exclusion relating to pregnancy.
(6) Genetic information--(i) A group health plan, and a health
insurance issuer offering group health insurance coverage, may not
impose a preexisting condition exclusion relating to a condition based
solely on genetic information. However, if an individual is diagnosed
with a condition, even if the condition relates to genetic information,
the plan may impose a preexisting condition exclusion with respect to
the condition, subject to the other limitations of this section.
(ii) The rules of this paragraph (b)(6) are illustrated by the
following example:
Example. (i) Facts. Individual A enrolls in a group health plan
that imposes a 12-month maximum preexisting condition exclusion.
Three months before A's enrollment, A's doctor told A that, based on
genetic information, A has a predisposition towards breast cancer. A
was not diagnosed with breast cancer at any time prior to A's
enrollment date in the plan. Nine months after A's enrollment date
in the plan, A is diagnosed with breast cancer.
(ii) Conclusion. In this Example, the plan may not impose a
preexisting condition exclusion with respect to A's breast cancer
because, prior to A's enrollment date, A was not diagnosed with
breast cancer.
(c) General notice of preexisting condition exclusion. A group
health plan imposing a preexisting condition exclusion, and a health
insurance issuer offering group health insurance coverage subject to a
preexisting condition exclusion, must provide a written general notice
of preexisting condition exclusion to participants under the plan and
cannot impose a preexisting condition exclusion with respect to a
participant or a dependent of the participant until such a notice is
provided.
(1) Manner and timing. A plan or issuer must provide the general
notice of preexisting condition exclusion as part of any written
application materials distributed by the plan or issuer for enrollment.
If the plan or issuer does not distribute such materials, the notice
must be provided by the earliest date following a request for
enrollment that the plan or issuer, acting in a reasonable and prompt
fashion, can provide the notice.
(2) Content. The general notice of preexisting condition exclusion
must notify participants of the following:
(i) The existence and terms of any preexisting condition exclusion
under the plan. This description includes the length of the plan's
look-back period (which is not to exceed 6 months under paragraph
(a)(2)(i) of this section); the maximum preexisting condition exclusion
period under the plan (which cannot exceed 12 months (or 18-months for
late enrollees) under paragraph (a)(2)(ii) of this section); and how
the plan will reduce the maximum preexisting condition exclusion period
by creditable coverage (described in paragraph (a)(2)(iii) of this
section).
(ii) A description of the rights of individuals to demonstrate
creditable coverage, and any applicable waiting periods, through a
certificate of creditable coverage (as required by Sec. 2590.701-5(a))
or through other means (as described in Sec. 2590.701-5(c)). This must
include a description of the right of the individual to request a
certificate from a prior plan or issuer, if necessary, and a statement
that the current plan or issuer will assist in obtaining a certificate
from any prior plan or issuer, if necessary.
(iii) A person to contact (including an address or telephone
number) for obtaining additional information or assistance regarding
the preexisting condition exclusion.
(3) Duplicate notices not required. If a notice satisfying the
requirements of this paragraph (c) is provided to an individual, the
obligation to provide a general notice of preexisting condition
exclusion with respect to that individual is satisfied for both the
plan and the issuer.
(4) Example with sample language. The rules of this paragraph (c)
are illustrated by the following example, which includes sample
language that plans and issuers can use as a basis for preparing their
own notices to satisfy the requirements of this paragraph (c):
Example. (i) Facts. A group health plan makes coverage effective
on the first day of the first calendar month after hire and on each
January 1 following an open season. The plan imposes a 12-month
maximum preexisting condition exclusion (18 months for late
enrollees) and uses a 6-month look-back period. As part of the
enrollment application materials, the plan provides the following
statement:
This plan imposes a preexisting condition exclusion. This means
that if you have a medical condition before coming to our plan, you
might have to wait a certain period of time before the plan will
provide coverage for that condition. This exclusion applies only to
conditions for which medical advice, diagnosis, care, or treatment
was recommended or received within a six-month period. Generally,
this six-month period ends the day before your coverage becomes
effective. However, if you were in a waiting period for coverage,
the six-month period ends on the day before the waiting period
begins. The preexisting condition exclusion does not apply to
pregnancy nor to a child who is enrolled in the plan within 30 days
after birth, adoption, or placement for adoption.
This exclusion may last up to 12 months (18 months if you are a
late enrollee) from your first day of coverage, or, if you were in a
waiting period, from the first day of your waiting period. However,
you can reduce the length of this exclusion period by the number of
days of your prior ``creditable coverage.'' Most prior health
coverage is creditable coverage and can be used to reduce the
preexisting condition exclusion if you have not experienced a break
in coverage of at least 63 days. To reduce the 12-month (or 18-
month) exclusion period by your creditable coverage, you should give
us a copy of any certificates of creditable coverage you have. If
you do not have a certificate, but you do have prior health
coverage, we will help you obtain one from your prior plan or
issuer. There are also other ways that you can show you have
creditable coverage. Please contact us if you need help
demonstrating creditable coverage.
All questions about the preexisting condition exclusion and
creditable coverage should be directed to Individual B at Address M
or Telephone Number N.
(ii) Conclusion. In this Example, the plan satisfies the general
notice requirement of this paragraph (c), and thus also satisfies
this requirement for any issuer providing the coverage.
(d) Determination of creditable coverage--(1) Determination within
reasonable time. If a group health plan or health insurance issuer
offering group health insurance coverage receives
[[Page 78769]]
creditable coverage information under Sec. 2590.701-5, the plan or
issuer is required, within a reasonable time following receipt of the
information, to make a determination regarding the amount of the
individual's creditable coverage and the length of any exclusion that
remains. Whether this determination is made within a reasonable time
depends on the relevant facts and circumstances. Relevant facts and
circumstances include whether a plan's application of a preexisting
condition exclusion would prevent an individual from having access to
urgent medical care.
(2) No time limit on presenting evidence of creditable coverage. A
plan or issuer may not impose any limit on the amount of time that an
individual has to present a certificate or other evidence of creditable
coverage.
(3) Example. The rules of this paragraph (d) are illustrated by the
following example:
Example. (i) Facts. A group health plan imposes a preexisting
condition exclusion period of 12 months. After receiving the general
notice of preexisting condition exclusion, Individual H develops an
urgent health condition before receiving a certificate of creditable
coverage from H's prior group health plan. H attests to the period
of prior coverage, presents corroborating documentation of the
coverage period, and authorizes the plan to request a certificate on
H's behalf in accordance with the rules of Sec. 2590.701-5.
(ii) Conclusion. In this Example, the plan must review the
evidence presented by H and make a determination of creditable
coverage within a reasonable time that is consistent with the
urgency of H's health condition. (This determination may be modified
as permitted under paragraph (f) of this section.)
(e) Individual notice of period of preexisting condition exclusion.
After an individual has presented evidence of creditable coverage and
after the plan or issuer has made a determination of creditable
coverage under paragraph (d) of this section, the plan or issuer must
provide the individual a written notice of the length of preexisting
condition exclusion that remains after offsetting for prior creditable
coverage. This individual notice is not required to identify any
medical conditions specific to the individual that could be subject to
the exclusion. A plan or issuer is not required to provide this notice
if the plan or issuer does not impose any preexisting condition
exclusion on the individual or if the plan's preexisting condition
exclusion is completely offset by the individual's prior creditable
coverage.
(1) Manner and timing. The individual notice must be provided by
the earliest date following a determination that the plan or issuer,
acting in a reasonable and prompt fashion, can provide the notice.
(2) Content. A plan or issuer must disclose--
(i) Its determination of any preexisting condition exclusion period
that applies to the individual (including the last day on which the
preexisting condition exclusion applies);
(ii) The basis for such determination, including the source and
substance of any information on which the plan or issuer relied;
(iii) An explanation of the individual's right to submit additional
evidence of creditable coverage; and
(iv) A description of any applicable appeal procedures established
by the plan or issuer.
(3) Duplicate notices not required. If a notice satisfying the
requirements of this paragraph (e) is provided to an individual, the
obligation to provide this individual notice of preexisting condition
exclusion with respect to that individual is satisfied for both the
plan and the issuer.
(4) Examples. The rules of this paragraph (e) are illustrated by
the following examples:
Example 1. (i) Facts. A group health plan imposes a preexisting
condition exclusion period of 12 months. After receiving the general
notice of preexisting condition exclusion, Individual G presents a
certificate of creditable coverage indicating 240 days of creditable
coverage. Within seven days of receipt of the certificate, the plan
determines that G is subject to a preexisting condition exclusion of
125 days, the last day of which is March 5. Five days later, the
plan notifies G that, based on the certificate G submitted, G is
subject to a preexisting condition exclusion period of 125 days,
ending on March 5. The notice also explains the opportunity to
submit additional evidence of creditable coverage and the plan's
appeal procedures. The notice does not identify any of G's medical
conditions that could be subject to the exclusion.
(ii) Conclusion. In this Example 1, the plan satisfies the
requirements of this paragraph (e).
Example 2. (i) Facts. Same facts as in Example 1, except that
the plan determines that G has 430 days of creditable coverage based
on G's certificate indicating 430 days of creditable coverage under
G's prior plan.
(ii) Conclusion. In this Example 2, the plan is not required to
notify G that G will not be subject to a preexisting condition
exclusion.
(f) Reconsideration. Nothing in this section prevents a plan or
issuer from modifying an initial determination of creditable coverage
if it determines that the individual did not have the claimed
creditable coverage, provided that--
(1) A notice of the new determination (consistent with the
requirements of paragraph (e) of this section) is provided to the
individual; and
(2) Until the notice of the new determination is provided, the plan
or issuer, for purposes of approving access to medical services (such
as a pre-surgery authorization), acts in a manner consistent with the
initial determination.
Sec. 2590.701-4 Rules relating to creditable coverage.
(a) General rules--(1) Creditable coverage. For purposes of this
section, except as provided in paragraph (a)(2) of this section, the
term creditable coverage means coverage of an individual under any of
the following:
(i) A group health plan as defined in Sec. 2590.732(a).
(ii) Health insurance coverage as defined in Sec. 2590.701-2
(whether or not the entity offering the coverage is subject to Part 7
of Subtitle B of Title I of the Act, and without regard to whether the
coverage is offered in the group market, the individual market, or
otherwise).
(iii) Part A or B of Title XVIII of the Social Security Act
(Medicare).
(iv) Title XIX of the Social Security Act (Medicaid), other than
coverage consisting solely of benefits under section 1928 of the Social
Security Act (the program for distribution of pediatric vaccines).
(v) Title 10 U.S.C. Chapter 55 (medical and dental care for members
and certain former members of the uniformed services, and for their
dependents; for purposes of Title 10 U.S.C. Chapter 55, uniformed
services means the armed forces and the Commissioned Corps of the
National Oceanic and Atmospheric Administration and of the Public
Health Service).
(vi) A medical care program of the Indian Health Service or of a
tribal organization.
(vii) A State health benefits risk pool. For purposes of this
section, a State health benefits risk pool means--
(A) An organization qualifying under section 501(c)(26) of the
Internal Revenue Code;
(B) A qualified high risk pool described in section 2744(c)(2) of
the PHS Act; or
(C) Any other arrangement sponsored by a State, the membership
composition of which is specified by the State and which is established
and maintained primarily to provide health coverage for individuals who
are residents of such State and who, by reason of the existence or
history of a medical condition--
(1) Are unable to acquire medical care coverage for such condition
through insurance or from an HMO, or
[[Page 78770]]
(2) Are able to acquire such coverage only at a rate which is
substantially in excess of the rate for such coverage through the
membership organization.
(viii) A health plan offered under Title 5 U.S.C. Chapter 89 (the
Federal Employees Health Benefits Program).
(ix) A public health plan. For purposes of this section, a public
health plan means any plan established or maintained by a State, the
U.S. government, a foreign country, or any political subdivision of a
State, the U.S. government, or a foreign country that provides health
coverage to individuals who are enrolled in the plan.
(x) A health benefit plan under section 5(e) of the Peace Corps Act
(22 U.S.C. 2504(e)).
(xi) Title XXI of the Social Security Act (State Children's Health
Insurance Program).
(2) Excluded coverage. Creditable coverage does not include
coverage of solely excepted benefits (described in Sec. 2590.732).
(3) Methods of counting creditable coverage. For purposes of
reducing any preexisting condition exclusion period, as provided under
Sec. 2590.701-3(a)(2)(iii), the amount of an individual's creditable
coverage generally is determined by using the standard method described
in paragraph (b) of this section. A plan or issuer may use the
alternative method under paragraph (c) of this section with respect to
any or all of the categories of benefits described under paragraph
(c)(3) of this section.
(b) Standard method--(1) Specific benefits not considered. Under
the standard method, the amount of creditable coverage is determined
without regard to the specific benefits included in the coverage.
(2) Counting creditable coverage--(i) Based on days. For purposes
of reducing the preexisting condition exclusion period that applies to
an individual, the amount of creditable coverage is determined by
counting all the days on which the individual has one or more types of
creditable coverage. Accordingly, if on a particular day an individual
has creditable coverage from more than one source, all the creditable
coverage on that day is counted as one day. Any days in a waiting
period for coverage are not creditable coverage.
(ii) Days not counted before significant break in coverage. Days of
creditable coverage that occur before a significant break in coverage
are not required to be counted.
(iii) Significant break in coverage defined--A significant break in
coverage means a period of 63 consecutive days during each of which an
individual does not have any creditable coverage. (See also Sec.
2590.731(c)(2)(iii) regarding the applicability to issuers of State
insurance laws that require a break of more than 63 days before an
individual has a significant break in coverage for purposes of State
insurance law.)
(iv) Periods that toll a significant break. Days in a waiting
period and days in an affiliation period are not taken into account in
determining whether a significant break in coverage has occurred. In
addition, for an individual who elects COBRA continuation coverage
during the second election period provided under the Trade Act of 2002,
the days between the date the individual lost group health plan
coverage and the first day of the second COBRA election period are not
taken into account in determining whether a significant break in
coverage has occurred.
(v) Examples. The rules of this paragraph (b)(2) are illustrated by
the following examples:
Example 1. (i) Facts. Individual A has creditable coverage under
Employer P's plan for 18 months before coverage ceases. A is
provided a certificate of creditable coverage on A's last day of
coverage. Sixty-four days after the last date of coverage under P's
plan, A is hired by Employer Q and enrolls in Q's group health plan.
Q's plan has a 12-month preexisting condition exclusion.
(ii) Conclusion. In this Example 1, A has a break in coverage of
63 days. Because A's break in coverage is a significant break in
coverage, Q's plan may disregard A's prior coverage and A may be
subject to a 12-month preexisting condition exclusion.
Example 2. (i) Facts. Same facts as Example 1, except that A is
hired by Q and enrolls in Q's plan on the 63rd day after the last
date of coverage under P's plan.
(ii) Conclusion. In this Example 2, A has a break in coverage of
62 days. Because A's break in coverage is not a significant break in
coverage, Q's plan must count A's prior creditable coverage for
purposes of reducing the plan's preexisting condition exclusion
period that applies to A.
Example 3. (i) Facts. Same facts as Example 1, except that Q's
plan provides benefits through an insurance policy that, as required
by applicable State insurance laws, defines a significant break in
coverage as 90 days.
(ii) Conclusion. In this Example 3, under State law, the issuer
that provides group health insurance coverage to Q's plan must count
A's period of creditable coverage prior to the 63-day break.
(However, if Q's plan was a self-insured plan, the coverage would
not be subject to State law. Therefore, the health coverage would
not be governed by the longer break rules and A's previous health
coverage could be disregarded.)
Example 4. --[Reserved]
Example 5. (i) Facts. Individual C has creditable coverage under
Employer S's plan for 200 days before coverage ceases. C is provided
a certificate of creditable coverage on C's last day of coverage. C
then does not have any creditable coverage for 51 days before being
hired by Employer T. T's plan has a 3-month waiting period. C works
for T for 2 months and then terminates employment. Eleven days after
terminating employment with T, C begins working for Employer U. U's
plan has no waiting period, but has a 6-month preexisting condition
exclusion.
(ii) Conclusion. In this Example 5, C does not have a
significant break in coverage because, after disregarding the
waiting period under T's plan, C had only a 62-day break in coverage
(51 days plus 11 days). Accordingly, C has 200 days of creditable
coverage, and U's plan may not apply its 6-month preexisting
condition exclusion with respect to C.
Example 6. --[Reserved]
Example 7. (i) Facts. Individual E has creditable coverage under
Employer X's plan. E is provided a certificate of creditable
coverage on E's last day of coverage. On the 63rd day without
coverage, E submits a substantially complete application for a
health insurance policy in the individual market. E's application is
accepted and coverage is made effective 10 days later.
(ii) Conclusion. In this Example 7, because E applied for the
policy before the end of the 63rd day, the period between the date
of application and the first day of coverage is a waiting period and
no significant break in coverage occurred even though the actual
period without coverage was 73 days.
Example 8. (i) Facts. Same facts as Example 7, except that E's
application for a policy in the individual market is denied.
(ii) Conclusion. In this Example 8, even though E did not obtain
coverage following application, the period between the date of
application and the date the coverage was denied is a waiting
period. However, to avoid a significant break in coverage, no later
than the day after the application for the policy is denied E would
need to do one of the following: submit a substantially complete
application for a different individual market policy; obtain
coverage in the group market; or be in a waiting period for coverage
in the group market.
(vi) Other permissible counting methods--(A) Rule. Notwithstanding
any other provisions of this paragraph (b)(2), for purposes of reducing
a preexisting condition exclusion period (but not for purposes of
issuing a certificate under Sec. 2590.701-5), a group health plan, and
a health insurance issuer offering group health insurance coverage, may
determine the amount of creditable coverage in any other manner that is
at least as favorable to the individual as the method set forth in this
paragraph (b)(2), subject to the requirements of other applicable law.
(B) Example. The rule of this paragraph (b)(2)(vi) is illustrated
by the following example:
Example. (i) Facts. Individual F has coverage under Group
Health Plan Y from January 3, 1997 through March 25, 1997. F
[[Page 78771]]
then becomes covered by Group Health Plan Z. F's enrollment date in
Plan Z is May 1, 1997. Plan Z has a 12-month preexisting condition
exclusion.
(ii) Conclusion. In this Example, Plan Z may determine, in
accordance with the rules prescribed in paragraphs (b)(2)(i), (ii),
and (iii) of this section, that F has 82 days of creditable coverage
(29 days in January, 28 days in February, and 25 days in March).
Thus, the preexisting condition exclusion will no longer apply to F
on February 8, 1998 (82 days before the 12-month anniversary of F's
enrollment (May 1)). For administrative convenience, however, Plan Z
may consider that the preexisting condition exclusion will no longer
apply to F on the first day of the month (February 1).
(c) Alternative method--(1) Specific benefits considered. Under the
alternative method, a group health plan, or a health insurance issuer
offering group health insurance coverage, determines the amount of
creditable coverage based on coverage within any category of benefits
described in paragraph (c)(3) of this section and not based on coverage
for any other benefits. The plan or issuer may use the alternative
method for any or all of the categories. The plan or issuer may apply a
different preexisting condition exclusion period with respect to each
category (and may apply a different preexisting condition exclusion
period for benefits that are not within any category). The creditable
coverage determined for a category of benefits applies only for
purposes of reducing the preexisting condition exclusion period with
respect to that category. An individual's creditable coverage for
benefits that are not within any category for which the alternative
method is being used is determined under the standard method of
paragraph (b) of this section.
(2) Uniform application. A plan or issuer using the alternative
method is required to apply it uniformly to all participants and
beneficiaries under the plan or health insurance coverage. The use of
the alternative method is required to be set forth in the plan.
(3) Categories of benefits. The alternative method for counting
creditable coverage may be used for coverage for the following
categories of benefits--
(i) Mental health;
(ii) Substance abuse treatment;
(iii) Prescription drugs;
(iv) Dental care; or
(v) Vision care.
(4) Plan notice. If the alternative method is used, the plan is
required to--
(i) State prominently that the plan is using the alternative method
of counting creditable coverage in disclosure statements concerning the
plan, and State this to each enrollee at the time of enrollment under
the plan; and
(ii) Include in these statements a description of the effect of
using the alternative method, including an identification of the
categories used.
(5) Disclosure of information on previous benefits. See Sec.
2590.701-5(b) for special rules concerning disclosure of coverage to a
plan, or issuer, using the alternative method of counting creditable
coverage under this paragraph (c).
(6) Counting creditable coverage--(i) In general. Under the
alternative method, the group health plan or issuer counts creditable
coverage within a category if any level of benefits is provided within
the category. Coverage under a reimbursement account or arrangement,
such as a flexible spending arrangement (as defined in section
106(c)(2) of the Internal Revenue Code), does not constitute coverage
within any category.
(ii) Special rules. In counting an individual's creditable coverage
under the alternative method, the group health plan, or issuer, first
determines the amount of the individual's creditable coverage that may
be counted under paragraph (b) of this section, up to a total of 365
days of the most recent creditable coverage (546 days for a late
enrollee). The period over which this creditable coverage is determined
is referred to as the determination period. Then, for the category
specified under the alternative method, the plan or issuer counts
within the category all days of coverage that occurred during the
determination period (whether or not a significant break in coverage
for that category occurs), and reduces the individual's preexisting
condition exclusion period for that category by that number of days.
The plan or issuer may determine the amount of creditable coverage in
any other reasonable manner, uniformly applied, that is at least as
favorable to the individual.
(iii) Example. The rules of this paragraph (c)(6) are illustrated
by the following example:
Example. (i) Facts. Individual D enrolls in Employer V's plan
on January 1, 2001. Coverage under the plan includes prescription
drug benefits. On April 1, 2001, the plan ceases providing
prescription drug benefits. D's employment with Employer V ends on
January 1, 2002, after D was covered under Employer V's group health
plan for 365 days. D enrolls in Employer Y's plan on February 1,
2002 (D's enrollment date). Employer Y's plan uses the alternative
method of counting creditable coverage and imposes a 12-month
preexisting condition exclusion on prescription drug benefits.
(ii) Conclusion. In this Example, Employer Y's plan may impose a
275-day preexisting condition exclusion with respect to D for
prescription drug benefits because D had 90 days of creditable
coverage relating to prescription drug benefits within D's
determination period.
Sec. 2590.701-5 Evidence of creditable coverage.
(a) Certificate of creditable coverage--(1) Entities required to
provide certificate--(i) In general. A group health plan, and each
health insurance issuer offering group health insurance coverage under
a group health plan, is required to furnish certificates of creditable
coverage in accordance with this paragraph (a).
(ii) Duplicate certificates not required. An entity required to
provide a certificate under this paragraph (a) with respect to an
individual satisfies that requirement if another party provides the
certificate, but only to the extent that the certificate contains the
information required in paragraph (a)(3) of this section. For example,
in the case of a group health plan funded through an insurance policy,
the issuer satisfies the certification requirement with respect to an
individual if the plan actually provides a certificate that includes
all the information required under paragraph (a)(3) of this section
with respect to the individual.
(iii) Special rule for group health plans. To the extent coverage
under a plan consists of group health insurance coverage, the plan
satisfies the certification requirements under this paragraph (a) if
any issuer offering the coverage is required to provide the
certificates pursuant to an agreement between the plan and the issuer.
For example, if there is an agreement between an issuer and a plan
sponsor under which the issuer agrees to provide certificates for
individuals covered under the plan, and the issuer fails to provide a
certificate to an individual when the plan would have been required to
provide one under this paragraph (a), then the issuer, but not the
plan, violates the certification requirements of this paragraph (a).
(iv) Special rules for issuers--(A)(1) Responsibility of issuer for
coverage period. An issuer is not required to provide information
regarding coverage provided to an individual by another party.
(2) Example. The rule of this paragraph (a)(1)(iv)(A) is
illustrated by the following example:
Example. (i) Facts. A plan offers coverage with an HMO option
from one issuer and an indemnity option from a different issuer. The
HMO has not entered into an agreement with
[[Page 78772]]
the plan to provide certificates as permitted under paragraph
(a)(1)(iii) of this section.
(ii) Conclusion. In this Example, if an employee switches from
the indemnity option to the HMO option and later ceases to be
covered under the plan, any certificate provided by the HMO is not
required to provide information regarding the employee's coverage
under the indemnity option.
(B)(1) Cessation of issuer coverage prior to cessation of coverage
under a plan. If an individual's coverage under an issuer's policy or
contract ceases before the individual's coverage under the plan ceases,
the issuer is required to provide sufficient information to the plan
(or to another party designated by the plan) to enable the plan (or
other party), after cessation of the individual's coverage under the
plan, to provide a certificate that reflects the period of coverage
under the policy or contract. By providing that information to the
plan, the issuer satisfies its obligation to provide an automatic
certificate for that period of creditable coverage with respect to the
individual under paragraph (a)(2)(ii) of this section. The issuer,
however, must still provide a certificate upon request as required
under paragraph (a)(2)(iii) of this section. In addition, the issuer is
required to cooperate with the plan in responding to any request made
under paragraph (b)(2) of this section (relating to the alternative
method of counting creditable coverage). Moreover, if the individual's
coverage under the plan ceases at the time the individual's coverage
under the issuer's policy or contract ceases, the issuer must still
provide an automatic certificate under paragraph (a)(2)(ii) of this
section. If an individual's coverage under an issuer's policy or
contract ceases on the effective date for changing enrollment options
under the plan, the issuer may presume (absent information to the
contrary) that the individual's coverage under the plan continues.
Therefore, the issuer is required to provide information to the plan in
accordance with this paragraph (a)(1)(iv)(B)(1) (and is not required to
provide an automatic certificate under paragraph (a)(2)(ii) of this
section).
(2) Example. The rule of this paragraph (a)(1)(iv)(B) is
illustrated by the following example:
Example. (i) Facts. A group health plan provides coverage under
an HMO option and an indemnity option through different issuers, and
only allows employees to switch on each January 1. Neither the HMO
nor the indemnity issuer has entered into an agreement with the plan
to provide certificates as permitted under paragraph (a)(1)(iii) of
this section.
(ii) Conclusion. In this Example, if an employee switches from
the indemnity option to the HMO option on January 1, the indemnity
issuer must provide the plan (or a person designated by the plan)
with appropriate information with respect to the individual's
coverage with the indemnity issuer. However, if the individual's
coverage with the indemnity issuer ceases at a date other than
January 1, the issuer is instead required to provide the individual
with an automatic certificate.
(2) Individuals for whom certificate must be provided; timing of
issuance--(i) Individuals. A certificate must be provided, without
charge, for participants or dependents who are or were covered under a
group health plan upon the occurrence of any of the events described in
paragraph (a)(2)(ii) or (iii) of this section.
(ii) Issuance of automatic certificates. The certificates described
in this paragraph (a)(2)(ii) are referred to as automatic certificates.
(A) Qualified beneficiaries upon a qualifying event. In the case of
an individual who is a qualified beneficiary (as defined in section
607(3) of the Act) entitled to elect COBRA continuation coverage, an
automatic certificate is required to be provided at the time the
individual would lose coverage under the plan in the absence of COBRA
continuation coverage or alternative coverage elected instead of COBRA
continuation coverage. A plan or issuer satisfies this requirement if
it provides the automatic certificate no later than the time a notice
is required to be furnished for a qualifying event under section 606 of
the Act (relating to notices required under COBRA).
(B) Other individuals when coverage ceases. In the case of an
individual who is not a qualified beneficiary entitled to elect COBRA
continuation coverage, an automatic certificate must be provided at the
time the individual ceases to be covered under the plan. A plan or
issuer satisfies the requirement to provide an automatic certificate at
the time the individual ceases to be covered if it provides the
automatic certificate within a reasonable time after coverage ceases
(or after the expiration of any grace period for nonpayment of
premiums).
(1) The cessation of temporary continuation coverage (TCC) under
Title 5 U.S.C. Chapter 89 (the Federal Employees Health Benefit
Program) is a cessation of coverage upon which an automatic certificate
must be provided.
(2) In the case of an individual who is entitled to elect to
continue coverage under a State program similar to COBRA and who
receives the automatic certificate not later than the time a notice is
required to be furnished under the State program, the certificate is
deemed to be provided within a reasonable time after coverage ceases
under the plan.
(3) If an individual's coverage ceases due to the operation of a
lifetime limit on all benefits, coverage is considered to cease for
purposes of this paragraph (a)(2)(ii)(B) on the earliest date that a
claim is denied due to the operation of the lifetime limit.
(C) Qualified beneficiaries when COBRA ceases. In the case of an
individual who is a qualified beneficiary and has elected COBRA
continuation coverage (or whose coverage has continued after the
individual became entitled to elect COBRA continuation coverage), an
automatic certificate is to be provided at the time the individual' s
coverage under the plan ceases. A plan, or issuer, satisfies this
requirement if it provides the automatic certificate within a
reasonable time after coverage ceases (or after the expiration of any
grace period for nonpayment of premiums). An automatic certificate is
required to be provided to such an individual regardless of whether the
individual has previously received an automatic certificate under
paragraph (a)(2)(ii)(A) of this section.
(iii) Any individual upon request. A certificate must be provided
in response to a request made by, or on behalf of, an individual at any
time while the individual is covered under a plan and up to 24 months
after coverage ceases. Thus, for example, a plan in which an individual
enrolls may, if authorized by the individual, request a certificate of
the individual's creditable coverage on behalf of the individual from a
plan in which the individual was formerly enrolled. After the request
is received, a plan or issuer is required to provide the certificate by
the earliest date that the plan or issuer, acting in a reasonable and
prompt fashion, can provide the certificate. A certificate is required
to be provided under this paragraph (a)(2)(iii) even if the individual
has previously received a certificate under this paragraph (a)(2)(iii)
or an automatic certificate under paragraph (a)(2)(ii) of this section.
(iv) Examples. The rules of this paragraph (a)(2) are illustrated
by the following examples:
Example 1. (i) Facts. Individual A terminates employment with
Employer Q. A is a qualified beneficiary entitled to elect COBRA
continuation coverage under Employer Q's group health plan. A notice
of the rights provided under COBRA is typically furnished to
qualified beneficiaries under the plan within 10 days after a
covered employee terminates employment.
[[Page 78773]]
(ii) Conclusion. In this Example 1, the automatic certificate
may be provided at the same time that A is provided the COBRA
notice.
Example 2. (i) Facts. Same facts as Example 1, except that the
automatic certificate for A is not completed by the time the COBRA
notice is furnished to A.
(ii) Conclusion. In this Example 2, the automatic certificate
may be provided after the COBRA notice but must be provided within
the period permitted by law for the delivery of notices under COBRA.
Example 3. (i) Facts. Employer R maintains an insured group
health plan. R has never had 20 employees and thus R's plan is not
subject to the COBRA continuation provisions. However, R is in a
State that has a State program similar to COBRA. B terminates
employment with R and loses coverage under R's plan.
(ii) Conclusion. In this Example 3, the automatic certificate
must be provided not later than the time a notice is required to be
furnished under the State program.
Example 4. (i) Facts. Individual C terminates employment with
Employer S and receives both a notice of C's rights under COBRA and
an automatic certificate. C elects COBRA continuation coverage under
Employer S's group health plan. After four months of COBRA
continuation coverage and the expiration of a 30-day grace period,
S's group health plan determines that C's COBRA continuation
coverage has ceased due to a failure to make a timely payment for
continuation coverage.
(ii) Conclusion. In this Example 4, the plan must provide an
updated automatic certificate to C within a reasonable time after
the end of the grace period.
Example 5. (i) Facts. Individual D is currently covered under
the group health plan of Employer T. D requests a certificate, as
permitted under paragraph (a)(2)(iii) of this section. Under the
procedure for T's plan, certificates are mailed (by first class
mail) 7 business days following receipt of the request. This date
reflects the earliest date that the plan, acting in a reasonable and
prompt fashion, can provide certificates.
(ii) Conclusion. In this Example 5, the plan's procedure
satisfies paragraph (a)(2)(iii) of this section.
(3) Form and content of certificate--(i) Written certificate--(A)
In general. Except as provided in paragraph (a)(3)(i)(B) of this
section, the certificate must be provided in writing (or any other
medium approved by the Secretary).
(B) Other permissible forms. No written certificate is required to
be provided under this paragraph (a) with respect to a particular event
described in paragraph (a)(2)(ii) or (iii) of this section, if--
(1) An individual who is entitled to receive the certificate
requests that the certificate be sent to another plan or issuer instead
of to the individual;
(2) The plan or issuer that would otherwise receive the certificate
agrees to accept the information in this paragraph (a)(3) through means
other than a written certificate (such as by telephone); and
(3) The receiving plan or issuer receives the information from the
sending plan or issuer through such means within the time required
under paragraph (a)(2) of this section.
(ii) Required information. The certificate must include the
following--
(A) The date the certificate is issued;
(B) The name of the group health plan that provided the coverage
described in the certificate;
(C) The name of the participant or dependent with respect to whom
the certificate applies, and any other information necessary for the
plan providing the coverage specified in the certificate to identify
the individual, such as the individual's identification number under
the plan and the name of the participant if the certificate is for (or
includes) a dependent;
(D) The name, address, and telephone number of the plan
administrator or issuer required to provide the certificate;
(E) The telephone number to call for further information regarding
the certificate (if different from paragraph (a)(3)(ii)(D) of this
section);
(F) Either--
(1) A statement that an individual has at least 18 months (for this
purpose, 546 days is deemed to be 18 months) of creditable coverage,
disregarding days of creditable coverage before a significant break in
coverage, or
(2) The date any waiting period (and affiliation period, if
applicable) began and the date creditable coverage began;
(G) The date creditable coverage ended, unless the certificate
indicates that creditable coverage is continuing as of the date of the
certificate; and
(H) An educational statement regarding HIPAA, which explains:
(1) The restrictions on the ability of a plan or issuer to impose a
preexisting condition exclusion (including an individual's ability to
reduce a preexisting condition exclusion by creditable coverage);
(2) Special enrollment rights;
(3) The prohibitions against discrimination based on any health
factor;
(4) The right to individual health coverage;
(5) The fact that state law may require issuers to provide
additional protections to individuals in that State; and
(6) Where to get more information.
(iii) Periods of coverage under the certificate. If an automatic
certificate is provided pursuant to paragraph (a)(2)(ii) of this
section, the period that must be included on the certificate is the
last period of continuous coverage ending on the date coverage ceased.
If an individual requests a certificate pursuant to paragraph
(a)(2)(iii) of this section, the certificate provided must include each
period of continuous coverage ending within the 24-month period ending
on the date of the request (or continuing on the date of the request).
A separate certificate may be provided for each such period of
continuous coverage.
(iv) Combining information for families. A certificate may provide
information with respect to both a participant and the participant's
dependents if the information is identical for each individual. If the
information is not identical, certificates may be provided on one form
if the form provides all the required information for each individual
and separately States the information that is not identical.
(v) Model certificate. The requirements of paragraph (a)(3)(ii) of
this section are satisfied if the plan or issuer provides a certificate
in accordance with a model certificate authorized by the Secretary.
(vi) Excepted benefits; categories of benefits. No certificate is
required to be furnished with respect to excepted benefits described in
Sec. 2590.732(c). In addition, the information in the certificate
regarding coverage is not required to specify categories of benefits
described in Sec. 2590.701-4(c) (relating to the alternative method of
counting creditable coverage). However, if excepted benefits are
provided concurrently with other creditable coverage (so that the
coverage does not consist solely of excepted benefits), information
concerning the benefits may be required to be disclosed under paragraph
(b) of this section.
(4) Procedures--(i) Method of delivery. The certificate is required
to be provided to each individual described in paragraph (a)(2) of this
section or an entity requesting the certificate on behalf of the
individual. The certificate may be provided by first-class mail. (See
also Sec. 2520.104b-1, which permits plans to make disclosures under
the Act--including the furnishing of certificates--through electronic
means if certain standards are met.) If the certificate or certificates
are provided to the participant and the participant's spouse at the
participant's last known address, then the requirements of this
paragraph (a)(4) are satisfied with respect to all individuals residing
at that address. If a dependent's last known address is different than
the participant's last known address, a separate certificate is
required to be provided to the dependent at the
[[Page 78774]]
dependent's last known address. If separate certificates are being
provided by mail to individuals who reside at the same address,
separate mailings of each certificate are not required.
(ii) Procedure for requesting certificates. A plan or issuer must
establish a written procedure for individuals to request and receive
certificates pursuant to paragraph (a)(2)(iii) of this section. The
written procedure must include all contact information necessary to
request a certificate (such as name and phone number or address).
(iii) Designated recipients. If an automatic certificate is
required to be provided under paragraph (a)(2)(ii) of this section, and
the individual entitled to receive the certificate designates another
individual or entity to receive the certificate, the plan or issuer
responsible for providing the certificate is permitted to provide the
certificate to the designated individual or entity. If a certificate is
required to be provided upon request under paragraph (a)(2)(iii) of
this section and the individual entitled to receive the certificate
designates another individual or entity to receive the certificate, the
plan or issuer responsible for providing the certificate is required to
provide the certificate to the designated individual or entity.
(5) Special rules concerning dependent coverage--(i)(A) Reasonable
efforts. A plan or issuer is required to use reasonable efforts to
determine any information needed for a certificate relating to
dependent coverage. In any case in which an automatic certificate is
required to be furnished with respect to a dependent under paragraph
(a)(2)(ii) of this section, no individual certificate is required to be
furnished until the plan or issuer knows (or making reasonable efforts
should know) of the dependent's cessation of coverage under the plan.
(B) Example. The rules of this paragraph (a)(5)(i) are illustrated
by the following example:
Example. (i) Facts. A group health plan covers employees and
their dependents. The plan annually requests all employees to
provide updated information regarding dependents, including the
specific date on which an employee has a new dependent or on which a
person ceases to be a dependent of the employee.
(ii) Conclusion. In this Example, the plan has satisfied the
standard in this paragraph (a)(5)(i) of this section that it make
reasonable efforts to determine the cessation of dependents'
coverage and the related dependent coverage information.
(ii) Special rules for demonstrating coverage. If a certificate
furnished by a plan or issuer does not provide the name of any
dependent covered by the certificate, the procedures described in
paragraph (c)(5) of this section may be used to demonstrate dependent
status. In addition, these procedures may be used to demonstrate that a
child was covered under any creditable coverage within 30 days after
birth, adoption, or placement for adoption. See also Sec. 2590.701-
3(b), under which such a child cannot be subject to a preexisting
condition exclusion.
(6) Special certification rules for entities not subject to Part 7
of Subtitle B of Title I of the Act--(i) Issuers. For special rules
requiring that issuers not subject to Part 7 of Subtitle B of Title I
of the Act provide certificates consistent with the rules in this
section, including issuers offering coverage with respect to creditable
coverage described in sections 701(c)(1)(G), (I), and (J) of the Act
(coverage under a State health benefits risk pool, a public health
plan, and a health benefit plan under section 5(e) of the Peace Corps
Act), see sections 2743 and 2721(b)(1)(B) of the PHS Act (requiring
certificates by issuers in the individual market, and issuers offering
health insurance coverage in connection with a group health plan,
including a church plan or a governmental plan (such as the Federal
Employees Health Benefits Program (FEHBP)). (However, this section does
not require a certificate to be provided with respect to short-term,
limited-duration insurance, as described in the definition of
individual health insurance coverage in Sec. 2590.701-2, that is not
provided by a group health plan or issuer offering health insurance
coverage in connection with a group health plan.)
(ii) Other entities. For special rules requiring that certain other
entities not subject to Part 7 of Subtitle B of Title I of the Act
provide certificates consistent with the rules in this section, see
section 2791(a)(3) of the PHS Act applicable to entities described in
sections 2701(c)(1)(C), (D), (E), and (F) of the PHS Act (relating to
Medicare, Medicaid, TRICARE, and Indian Health Service), section
2721(b)(1)(A) of the PHS Act applicable to nonfederal governmental
plans generally, section 2721(b)(2)(C)(ii) of the PHS Act applicable to
nonfederal governmental plans that elect to be excluded from the
requirements of Subparts 1 through 3 of Part A of Title XXVII of the
PHS Act, and section 9832(a) of the Internal Revenue Code applicable to
group health plans, which includes church plans (as defined in section
414(e) of the Internal Revenue Code).
(b) Disclosure of coverage to a plan or issuer using the
alternative method of counting creditable coverage--(1) In general.
After an individual provides a certificate of creditable coverage to a
plan or issuer using the alternative method under Sec. 2590.701-4(c),
that plan or issuer (requesting entity) must request that the entity
that issued the certificate (prior entity) disclose the information set
forth in paragraph (b)(2) of this section. The prior entity is required
to disclose this information promptly.
(2) Information to be disclosed. The prior entity is required to
identify to the requesting entity the categories of benefits with
respect to which the requesting entity is using the alternative method
of counting creditable coverage, and the requesting entity may identify
specific information that the requesting entity reasonably needs in
order to determine the individual's creditable coverage with respect to
any such category.
(3) Charge for providing information. The prior entity may charge
the requesting entity for the reasonable cost of disclosing such
information.
(c) Ability of an individual to demonstrate creditable coverage and
waiting period information--(1) Purpose. The rules in this paragraph
(c) implement section 701(c)(4) of the Act, which permits individuals
to demonstrate the duration of creditable coverage through means other
than certificates, and section 701(e)(3) of the Act, which requires the
Secretary to establish rules designed to prevent an individual's
subsequent coverage under a group health plan or health insurance
coverage from being adversely affected by an entity's failure to
provide a certificate with respect to that individual.
(2) In general. If the accuracy of a certificate is contested or a
certificate is unavailable when needed by an individual, the individual
has the right to demonstrate creditable coverage (and waiting or
affiliation periods) through the presentation of documents or other
means. For example, the individual may make such a demonstration when--
(i) An entity has failed to provide a certificate within the
required time;
(ii) The individual has creditable coverage provided by an entity
that is not required to provide a certificate of the coverage pursuant
to paragraph (a) of this section;
(iii) The individual has an urgent medical condition that
necessitates a determination before the individual can deliver a
certificate to the plan; or
(iv) The individual lost a certificate that the individual had
previously received and is unable to obtain another certificate.
[[Page 78775]]
(3) Evidence of creditable coverage--(i) Consideration of
evidence--(A) A plan or issuer is required to take into account all
information that it obtains or that is presented on behalf of an
individual to make a determination, based on the relevant facts and
circumstances, whether an individual has creditable coverage. A plan or
issuer shall treat the individual as having furnished a certificate
under paragraph (a) of this section if--
(1) The individual attests to the period of creditable coverage;
(2) The individual also presents relevant corroborating evidence of
some creditable coverage during the period; and
(3) The individual cooperates with the plan's or issuer's efforts
to verify the individual's coverage.
(B) For purposes of this paragraph (c)(3)(i), cooperation includes
providing (upon the plan's or issuer's request) a written authorization
for the plan or issuer to request a certificate on behalf of the
individual, and cooperating in efforts to determine the validity of the
corroborating evidence and the dates of creditable coverage. While a
plan or issuer may refuse to credit coverage where the individual fails
to cooperate with the plan's or issuer's efforts to verify coverage,
the plan or issuer may not consider an individual's inability to obtain
a certificate to be evidence of the absence of creditable coverage.
(ii) Documents. Documents that corroborate creditable coverage (and
waiting or affiliation periods) include explanations of benefits (EOBs)
or other correspondence from a plan or issuer indicating coverage, pay
stubs showing a payroll deduction for health coverage, a health
insurance identification card, a certificate of coverage under a group
health policy, records from medical care providers indicating health
coverage, third party statements verifying periods of coverage, and any
other relevant documents that evidence periods of health coverage.
(iii) Other evidence. Creditable coverage (and waiting or
affiliation periods) may also be corroborated through means other than
documentation, such as by a telephone call from the plan or provider to
a third party verifying creditable coverage.
(iv) Example. The rules of this paragraph (c)(3) are illustrated by
the following example:
Example. (i) Facts. Individual F terminates employment with
Employer W and, a month later, is hired by Employer X. X's group
health plan imposes a preexisting condition exclusion of 12 months
on new enrollees under the plan and uses the standard method of
determining creditable coverage. F fails to receive a certificate of
prior coverage from the self-insured group health plan maintained by
F's prior employer, W, and requests a certificate. However, F (and
X's plan, on F's behalf and with F's cooperation) is unable to
obtain a certificate from W's plan. F attests that, to the best of
F's knowledge, F had at least 12 months of continuous coverage under
W's plan, and that the coverage ended no earlier than F's
termination of employment from W. In addition, F presents evidence
of coverage, such as an explanation of benefits for a claim that was
made during the relevant period.
(ii) Conclusion. In this Example, based solely on these facts, F
has demonstrated creditable coverage for the 12 months of coverage
under W's plan in the same manner as if F had presented a written
certificate of creditable coverage.
(4) Demonstrating categories of creditable coverage. Procedures
similar to those described in this paragraph (c) apply in order to
determine the duration of an individual's creditable coverage with
respect to any category under paragraph (b) of this section (relating
to determining creditable coverage under the alternative method).
(5) Demonstrating dependent status. If, in the course of providing
evidence (including a certificate) of creditable coverage, an
individual is required to demonstrate dependent status, the group
health plan or issuer is required to treat the individual as having
furnished a certificate showing the dependent status if the individual
attests to such dependency and the period of such status and the
individual cooperates with the plan's or issuer's efforts to verify the
dependent status.
Sec. 2590.701-6 Special enrollment periods.
(a) Special enrollment for certain individuals who lose coverage--
(1) In general. A group health plan, and a health insurance issuer
offering health insurance coverage in connection with a group health
plan, is required to permit current employees and dependents (as
defined in Sec. 2590.701-2) who are described in paragraph (a)(2) of
this section to enroll for coverage under the terms of the plan if the
conditions in paragraph (a)(3) of this section are satisfied. The
special enrollment rights under this paragraph (a) apply without regard
to the dates on which an individual would otherwise be able to enroll
under the plan.
(2) Individuals eligible for special enrollment--(i) When employee
loses coverage. A current employee and any dependents (including the
employee's spouse) each are eligible for special enrollment in any
benefit package under the plan (subject to plan eligibility rules
conditioning dependent enrollment on enrollment of the employee) if--
(A) The employee and the dependents are otherwise eligible to
enroll in the benefit package;
(B) When coverage under the plan was previously offered, the
employee had coverage under any group health plan or health insurance
coverage; and
(C) The employee satisfies the conditions of paragraph (a)(3)(i),
(ii), or (iii) of this section and, if applicable, paragraph (a)(3)(iv)
of this section.
(ii) When dependent loses coverage--(A) A dependent of a current
employee (including the employee's spouse) and the employee each are
eligible for special enrollment in any benefit package under the plan
(subject to plan eligibility rules conditioning dependent enrollment on
enrollment of the employee) if--
(1) The dependent and the employee are otherwise eligible to enroll
in the benefit package;
(2) When coverage under the plan was previously offered, the
dependent had coverage under any group health plan or health insurance
coverage; and
(3) The dependent satisfies the conditions of paragraph (a)(3)(i),
(ii), or (iii) of this section and, if applicable, paragraph (a)(3)(iv)
of this section.
(B) However, the plan or issuer is not required to enroll any other
dependent unless that dependent satisfies the criteria of this
paragraph (a)(2)(ii), or the employee satisfies the criteria of
paragraph (a)(2)(i) of this section.
(iii) Examples. The rules of this paragraph (a)(2) are illustrated
by the following examples:
Example 1. (i) Facts. Individual A works for Employer X. A, A's
spouse, and A's dependent children are eligible but not enrolled for
coverage under X's group health plan. A's spouse works for Employer
Y and at the time coverage was offered under X's plan, A was
enrolled in coverage under Y's plan. Then, A loses eligibility for
coverage under Y's plan.
(ii) Conclusion. In this Example 1, because A satisfies the
conditions for special enrollment under paragraph (a)(2)(i) of this
section, A, A's spouse, and A's dependent children are eligible for
special enrollment under X's plan.
Example 2. (i) Facts. Individual A and A's spouse are eligible
but not enrolled for coverage under Group Health Plan P maintained
by A's employer. When A was first presented with an opportunity to
enroll A and A's spouse, they did not have other coverage. Later, A
and A's spouse enroll in Group Health Plan Q maintained by the
employer of A's spouse. During a subsequent open enrollment period
in P, A and A's spouse did not enroll because of their coverage
under Q. They then lose eligibility for coverage under Q.
(ii) Conclusion. In this Example 2, because A and A's spouse
were covered under Q when they did not enroll in P during open
[[Page 78776]]
enrollment, they satisfy the conditions for special enrollment under
paragraphs (a)(2)(i) and (ii) of this section. Consequently, A and
A's spouse are eligible for special enrollment under P.
Example 3. (i) Facts. Individual B works for Employer X. B and
B's spouse are eligible but not enrolled for coverage under X's
group health plan. B's spouse works for Employer Y and at the time
coverage was offered under X's plan, B's spouse was enrolled in
self-only coverage under Y's group health plan. Then, B's spouse
loses eligibility for coverage under Y's plan.
(ii) Conclusion. In this Example 3, because B's spouse satisfies
the conditions for special enrollment under paragraph (a)(2)(ii) of
this section, both B and B's spouse are eligible for special
enrollment under X's plan.
Example 4. (i) Facts. Individual A works for Employer X. X
maintains a group health plan with two benefit packages--an HMO
option and an indemnity option. Self-only and family coverage are
available under both options. A enrolls for self-only coverage in
the HMO option. A's spouse works for Employer Y and was enrolled for
self-only coverage under Y's plan at the time coverage was offered
under X's plan. Then, A's spouse loses coverage under Y's plan. A
requests special enrollment for A and A's spouse under the plan's
indemnity option.
(ii) Conclusion. In this Example 4, because A's spouse satisfies
the conditions for special enrollment under paragraph (a)(2)(ii) of
this section, both A and A's spouse can enroll in either benefit
package under X's plan. Therefore, if A requests enrollment in
accordance with the requirements of this section, the plan must
allow A and A's spouse to enroll in the indemnity option.
(3) Conditions for special enrollment--(i) Loss of eligibility for
coverage. In the case of an employee or dependent who has coverage that
is not COBRA continuation coverage, the conditions of this paragraph
(a)(3)(i) are satisfied at the time the coverage is terminated as a
result of loss of eligibility (regardless of whether the individual is
eligible for or elects COBRA continuation coverage). Loss of
eligibility under this paragraph (a)(3)(i) does not include a loss due
to the failure of the employee or dependent to pay premiums on a timely
basis or termination of coverage for cause (such as making a fraudulent
claim or an intentional misrepresentation of a material fact in
connection with the plan). Loss of eligibility for coverage under this
paragraph (a)(3)(i) includes (but is not limited to)--
(A) Loss of eligibility for coverage as a result of legal
separation, divorce, cessation of dependent status (such as attaining
the maximum age to be eligible as a dependent child under the plan),
death of an employee, termination of employment, reduction in the
number of hours of employment, and any loss of eligibility for coverage
after a period that is measured by reference to any of the foregoing;
(B) In the case of coverage offered through an HMO, or other
arrangement, in the individual market that does not provide benefits to
individuals who no longer reside, live, or work in a service area, loss
of coverage because an individual no longer resides, lives, or works in
the service area (whether or not within the choice of the individual);
(C) In the case of coverage offered through an HMO, or other
arrangement, in the group market that does not provide benefits to
individuals who no longer reside, live, or work in a service area, loss
of coverage because an individual no longer resides, lives, or works in
the service area (whether or not within the choice of the individual),
and no other benefit package is available to the individual;
(D) A situation in which an individual incurs a claim that would
meet or exceed a lifetime limit on all benefits; and
(E) A situation in which a plan no longer offers any benefits to
the class of similarly situated individuals (as described in Sec.
2590.702(d)) that includes the individual.
(ii) Termination of employer contributions. In the case of an
employee or dependent who has coverage that is not COBRA continuation
coverage, the conditions of this paragraph (a)(3)(ii) are satisfied at
the time employer contributions towards the employee's or dependent's
coverage terminate. Employer contributions include contributions by any
current or former employer that was contributing to coverage for the
employee or dependent.
(iii) Exhaustion of COBRA continuation coverage. In the case of an
employee or dependent who has coverage that is COBRA continuation
coverage, the conditions of this paragraph (a)(3)(iii) are satisfied at
the time the COBRA continuation coverage is exhausted. For purposes of
this paragraph (a)(3)(iii), an individual who satisfies the conditions
for special enrollment of paragraph (a)(3)(i) of this section, does not
enroll, and instead elects and exhausts COBRA continuation coverage
satisfies the conditions of this paragraph (a)(3)(iii). (Exhaustion of
COBRA continuation coverage is defined in Sec. 2590.701-2.)
(iv) Written statement. A plan may require an employee declining
coverage (for the employee or any dependent of the employee) to State
in writing whether the coverage is being declined due to other health
coverage only if, at or before the time the employee declines coverage,
the employee is provided with notice of the requirement to provide the
statement (and the consequences of the employee's failure to provide
the statement). If a plan requires such a statement, and an employee
does not provide it, the plan is not required to provide special
enrollment to the employee or any dependent of the employee under this
paragraph (a)(3). A plan must treat an employee as having satisfied the
plan requirement permitted under this paragraph (a)(3)(iv) if the
employee provides a written statement that coverage was being declined
because the employee or dependent had other coverage; a plan cannot
require anything more for the employee to satisfy the plan's
requirement to provide a written statement. (For example, the plan
cannot require that the statement be notarized.)
(v) The rules of this paragraph (a)(3) are illustrated by the
following examples:
Example 1. (i) Facts. Individual D enrolls in a group health
plan maintained by Employer Y. At the time D enrolls, Y pays 70
percent of the cost of employee coverage and D pays the rest. Y
announces that beginning January 1, Y will no longer make employer
contributions towards the coverage. Employees may maintain coverage,
however, if they pay the total cost of the coverage.
(ii) Conclusion. In this Example 1, employer contributions
towards D's coverage ceased on January 1 and the conditions of
paragraph (a)(3)(ii) of this section are satisfied on this date
(regardless of whether D elects to pay the total cost and continue
coverage under Y's plan).
Example 2. (i) Facts. A group health plan provides coverage
through two options--Option 1 and Option 2. Employees can enroll in
either option only within 30 days of hire or on January 1 of each
year. Employee A is eligible for both options and enrolls in Option
1. Effective July 1 the plan terminates coverage under Option 1 and
the plan does not create an immediate open enrollment opportunity
into Option 2.
(ii) Conclusion. In this Example 2, A has experienced a loss of
eligibility for coverage that satisfies paragraph (a)(3)(i) of this
section, and has satisfied the other conditions for special
enrollment under paragraph (a)(2)(i) of this section. Therefore, if
A satisfies the other conditions of this paragraph (a), the plan
must permit A to enroll in Option 2 as a special enrollee. (A may
also be eligible to enroll in another group health plan, such as a
plan maintained by the employer of A's spouse, as a special
enrollee.) The outcome would be the same if Option 1 was terminated
by an issuer and the plan made no other coverage available to A.
Example 3. (i) Facts. Individual C is covered under a group
health plan maintained by Employer X. While covered under X's plan,
C was eligible for but did not enroll in a plan maintained by
Employer Z, the employer of C's spouse. C terminates employment with
X and loses eligibility for coverage under X's plan. C has a special
[[Page 78777]]
enrollment right to enroll in Z's plan, but C instead elects COBRA
continuation coverage under X's plan. C exhausts COBRA continuation
coverage under X's plan and requests special enrollment in Z's plan.
(ii) Conclusion. In this Example 3, C has satisfied the
conditions for special enrollment under paragraph (a)(3)(iii) of
this section, and has satisfied the other conditions for special
enrollment under paragraph (a)(2)(i) of this section. The special
enrollment right that C had into Z's plan immediately after the loss
of eligibility for coverage under X's plan was an offer of coverage
under Z's plan. When C later exhausts COBRA coverage under X's plan,
C has a second special enrollment right in Z's plan.
(4) Applying for special enrollment and effective date of
coverage--(i) A plan or issuer must allow an employee a period of at
least 30 days after an event described in paragraph (a)(3) of this
section (other than an event described in paragraph (a)(3)(i)(D)) to
request enrollment (for the employee or the employee's dependent). In
the case of an event described in paragraph (a)(3)(i)(D) of this
section (relating to loss of eligibility for coverage due to the
operation of a lifetime limit on all benefits), a plan or issuer must
allow an employee a period of at least 30 days after a claim is denied
due to the operation of a lifetime limit on all benefits.
(ii) Coverage must begin no later than the first day of the first
calendar month beginning after the date the plan or issuer receives the
request for special enrollment.
(b) Special enrollment with respect to certain dependent
beneficiaries--(1) In general. A group health plan, and a health
insurance issuer offering health insurance coverage in connection with
a group health plan, that makes coverage available with respect to
dependents is required to permit individuals described in paragraph
(b)(2) of this section to be enrolled for coverage in a benefit package
under the terms of the plan. Paragraph (b)(3) of this section describes
the required special enrollment period and the date by which coverage
must begin. The special enrollment rights under this paragraph (b)
apply without regard to the dates on which an individual would
otherwise be able to enroll under the plan.
(2) Individuals eligible for special enrollment. An individual is
described in this paragraph (b)(2) if the individual is otherwise
eligible for coverage in a benefit package under the plan and if the
individual is described in paragraph (b)(2)(i), (ii), (iii), (iv), (v),
or (vi) of this section.
(i) Current employee only. A current employee is described in this
paragraph (b)(2)(i) if a person becomes a dependent of the individual
through marriage, birth, adoption, or placement for adoption.
(ii) Spouse of a participant only. An individual is described in
this paragraph (b)(2)(ii) if either --
(A) The individual becomes the spouse of a participant; or
(B) The individual is a spouse of a participant and a child becomes
a dependent of the participant through birth, adoption, or placement
for adoption.
(iii) Current employee and spouse. A current employee and an
individual who is or becomes a spouse of such an employee, are
described in this paragraph (b)(2)(iii) if either--
(A) The employee and the spouse become married; or
(B) The employee and spouse are married and a child becomes a
dependent of the employee through birth, adoption, or placement for
adoption.
(iv) Dependent of a participant only. An individual is described in
this paragraph (b)(2)(iv) if the individual is a dependent (as defined
in Sec. 2590.701-2) of a participant and the individual has become a
dependent of the participant through marriage, birth, adoption, or
placement for adoption.
(v) Current employee and a new dependent. A current employee and an
individual who is a dependent of the employee, are described in this
paragraph (b)(2)(v) if the individual becomes a dependent of the
employee through marriage, birth, adoption, or placement for adoption.
(vi) Current employee, spouse, and a new dependent. A current
employee, the employee's spouse, and the employee's dependent are
described in this paragraph (b)(2)(vi) if the dependent becomes a
dependent of the employee through marriage, birth, adoption, or
placement for adoption.
(3) Applying for special enrollment and effective date of
coverage--(i) Request. A plan or issuer must allow an individual a
period of at least 30 days after the date of the marriage, birth,
adoption, or placement for adoption (or, if dependent coverage is not
generally made available at the time of the marriage, birth, adoption,
or placement for adoption, a period of at least 30 days after the date
the plan makes dependent coverage generally available) to request
enrollment (for the individual or the individual's dependent).
(ii) Reasonable procedures for special enrollment. [Reserved]
(iii) Date coverage must begin--(A) Marriage. In the case of
marriage, coverage must begin no later than the first day of the first
calendar month beginning after the date the plan or issuer receives the
request for special enrollment.
(B) Birth, adoption, or placement for adoption. Coverage must begin
in the case of a dependent's birth on the date of birth and in the case
of a dependent's adoption or placement for adoption no later than the
date of such adoption or placement for adoption (or, if dependent
coverage is not made generally available at the time of the birth,
adoption, or placement for adoption, the date the plan makes dependent
coverage available).
(4) Examples. The rules of this paragraph (b) are illustrated by
the following examples:
Example 1. (i) Facts. An employer maintains a group health plan
that offers all employees employee-only coverage, employee-plus-
spouse coverage, or family coverage. Under the terms of the plan,
any employee may elect to enroll when first hired (with coverage
beginning on the date of hire) or during an annual open enrollment
period held each December (with coverage beginning the following
January 1). Employee A is hired on September 3. A is married to B,
and they have no children. On March 15 in the following year a child
C is born to A and B. Before that date, A and B have not been
enrolled in the plan.
(ii) Conclusion. In this Example 1, the conditions for special
enrollment of an employee with a spouse and new dependent under
paragraph (b)(2)(vi) of this section are satisfied. If A satisfies
the conditions of paragraph (b)(3) of this section for requesting
enrollment timely, the plan will satisfy this paragraph (b) if it
allows A to enroll either with employee-only coverage, with
employee-plus-spouse coverage (for A and B), or with family coverage
(for A, B, and C). The plan must allow whatever coverage is chosen
to begin on March 15, the date of C's birth.
Example 2. (i) Facts. Individual D works for Employer X. X
maintains a group health plan with two benefit packages--an HMO
option and an indemnity option. Self-only and family coverage are
available under both options. D enrolls for self-only coverage in
the HMO option. Then, a child, E, is placed for adoption with D.
Within 30 days of the placement of E for adoption, D requests
enrollment for D and E under the plan's indemnity option.
(ii) Conclusion. In this Example 2, D and E satisfy the
conditions for special enrollment under paragraphs (b)(2)(v) and
(b)(3) of this section. Therefore, the plan must allow D and E to
enroll in the indemnity coverage, effective as of the date of the
placement for adoption.
(c) Notice of special enrollment. At or before the time an employee
is initially offered the opportunity to enroll in a group health plan,
the plan must furnish the employee with a notice of special enrollment
that complies with the requirements of this paragraph (c).
[[Page 78778]]
(1) Description of special enrollment rights. The notice of special
enrollment must include a description of special enrollment rights. The
following model language may be used to satisfy this requirement:
If you are declining enrollment for yourself or your dependents
(including your spouse) because of other health insurance or group
health plan coverage, you may be able to enroll yourself and your
dependents in this plan if you or your dependents lose eligibility
for that other coverage (or if the employer stops contributing
towards your or your dependents' other coverage). However, you must
request enrollment within [insert ``30 days'' or any longer period
that applies under the plan] after your or your dependents' other
coverage ends (or after the employer stops contributing toward the
other coverage).
In addition, if you have a new dependent as a result of
marriage, birth, adoption, or placement for adoption, you may be
able to enroll yourself and your dependents. However, you must
request enrollment within [insert ``30 days'' or any longer period
that applies under the plan] after the marriage, birth, adoption, or
placement for adoption.
To request special enrollment or obtain more information,
contact [insert the name, title, telephone number, and any
additional contact information of the appropriate plan
representative].
(2) Additional information that may be required. The notice of
special enrollment must also include, if applicable, the notice
described in paragraph (a)(3)(iv) of this section (the notice required
to be furnished to an individual declining coverage if the plan
requires the reason for declining coverage to be in writing).
(d) Treatment of special enrollees--(1) If an individual requests
enrollment while the individual is entitled to special enrollment under
either paragraph (a) or (b) of this section, the individual is a
special enrollee, even if the request for enrollment coincides with a
late enrollment opportunity under the plan. Therefore, the individual
cannot be treated as a late enrollee.
(2) Special enrollees must be offered all the benefit packages
available to similarly situated individuals who enroll when first
eligible. For this purpose, any difference in benefits or cost-sharing
requirements for different individuals constitutes a different benefit
package. In addition, a special enrollee cannot be required to pay more
for coverage than a similarly situated individual who enrolls in the
same coverage when first eligible. The length of any preexisting
condition exclusion that may be applied to a special enrollee cannot
exceed the length of any preexisting condition exclusion that is
applied to similarly situated individuals who enroll when first
eligible. For rules prohibiting the application of a preexisting
condition exclusion to certain newborns, adopted children, and children
placed for adoption, see Sec. 2590.701-3(b).
(3) The rules of this section are illustrated by the following
example:
Example. (i) Facts. Employer Y maintains a group health plan
that has an enrollment period for late enrollees every November 1
through November 30 with coverage effective the following January 1.
On October 18, Individual B loses coverage under another group
health plan and satisfies the requirements of paragraphs (a)(2),
(3), and (4) of this section. B submits a completed application for
coverage on November 2.
(ii) Conclusion. In this Example, B is a special enrollee.
Therefore, even though B's request for enrollment coincides with an
open enrollment period, B's coverage is required to be made
effective no later than December 1 (rather than the plan's January 1
effective date for late enrollees).
Sec. 2590.701-7 HMO affiliation period as an alternative to a
preexisting condition exclusion.
(a) In general. A group health plan offering health insurance
coverage through an HMO, or an HMO that offers health insurance
coverage in connection with a group health plan, may impose an
affiliation period only if each of the following requirements is
satisfied--
(1) No preexisting condition exclusion is imposed with respect to
any coverage offered by the HMO in connection with the particular group
health plan.
(2) No premium is charged to a participant or beneficiary for the
affiliation period.
(3) The affiliation period for the HMO coverage is imposed
consistent with the requirements of Sec. 2590.702 (prohibiting
discrimination based on a health factor).
(4) The affiliation period does not exceed 2 months (or 3 months in
the case of a late enrollee).
(5) The affiliation period begins on the enrollment date, or in the
case of a late enrollee, the affiliation period begins on the day that
would be the first day of coverage but for the affiliation period.
(6) The affiliation period for enrollment in the HMO under a plan
runs concurrently with any waiting period.
(b) Examples. The rules of paragraph (a) of this section are
illustrated by the following examples:
Example 1. (i) Facts. An employer sponsors a group health plan.
Benefits under the plan are provided through an HMO, which imposes a
two-month affiliation period. In order to be eligible under the
plan, employees must have worked for the employer for six months.
Individual A begins working for the employer on February 1.
(ii) Conclusion. In this Example 1, Individual A's enrollment
date is February 1 (see Sec. 2590.701-3(a)(2)), and both the
waiting period and the affiliation period begin on this date and run
concurrently. Therefore, the affiliation period ends on March 31,
the waiting period ends on July 31, and A is eligible to have
coverage begin on August 1.
Example 2. (i) Facts. A group health plan has two benefit
package options, a fee-for-service option and an HMO option. The HMO
imposes a 1-month affiliation period. Individual B is enrolled in
the fee-for-service option for more than one month and then decides
to switch to the HMO option at open season.
(ii) Conclusion. In this Example 2, the HMO may not impose the
affiliation period with respect to B because any affiliation period
would have to begin on B's enrollment date in the plan rather than
the date that B enrolled in the HMO option. Therefore, the
affiliation period would have expired before B switched to the HMO
option.
Example 3. (i) Facts. An employer sponsors a group health plan
that provides benefits through an HMO. The plan imposes a two-month
affiliation period with respect to salaried employees, but it does
not impose an affiliation period with respect to hourly employees.
(ii) Conclusion. In this Example 3, the plan may impose the
affiliation period with respect to salaried employees without
imposing any affiliation period with respect to hourly employees
(unless, under the circumstances, treating salaried and hourly
employees differently does not comply with the requirements of Sec.
2590.702).
(c) Alternatives to affiliation period. An HMO may use alternative
methods in lieu of an affiliation period to address adverse selection,
as approved by the State insurance commissioner or other official
designated to regulate HMOs. However, an arrangement that is in the
nature of a preexisting condition exclusion cannot be an alternative to
an affiliation period. Nothing in this part requires a State to receive
proposals for or approve alternatives to affiliation periods.
0
4. Section 2590.701-8 is added and reserved to read as follows:
Sec. 2590.701-8 Interaction with the Family and Medical Leave
Act. [Reserved]
0
5. Revise the heading of subpart D to read as follows:
Subpart D--General Provisions Related to Subparts B and C
0
6. Sections 2590.731, 2590.732 and 2590.736 are revised to read as
follows:
Sec. 2590.731 Preemption; State flexibility; construction.
(a) Continued applicability of State law with respect to health
insurance issuers. Subject to paragraph (b) of this
[[Page 78779]]
section and except as provided in paragraph (c) of this section, part 7
of subtitle B of Title I of the Act is not to be construed to supersede
any provision of State law which establishes, implements, or continues
in effect any standard or requirement solely relating to health
insurance issuers in connection with group health insurance coverage
except to the extent that such standard or requirement prevents the
application of a requirement of this part.
(b) Continued preemption with respect to group health plans.
Nothing in part 7 of subtitle B of Title I of the Act affects or
modifies the provisions of section 514 of the Act with respect to group
health plans.
(c) Special rules--(1) In general. Subject to paragraph (c)(2) of
this section, the provisions of part 7 of subtitle B of Title I of the
Act relating to health insurance coverage offered by a health insurance
issuer supersede any provision of State law which establishes,
implements, or continues in effect a standard or requirement applicable
to imposition of a preexisting condition exclusion specifically
governed by section 701 which differs from the standards or
requirements specified in such section.
(2) Exceptions. Only in relation to health insurance coverage
offered by a health insurance issuer, the provisions of this part do
not supersede any provision of State law to the extent that such
provision--
(i) Shortens the period of time from the ``6-month period''
described in section 701(a)(1) of the Act and Sec. 2590.701-3(a)(1)(i)
(for purposes of identifying a preexisting condition);
(ii) Shortens the period of time from the ``12 months'' and ``18
months'' described in section 701(a)(2) of the Act and Sec. 2590.701-
3(a)(1)(ii) (for purposes of applying a preexisting condition exclusion
period);
(iii) Provides for a greater number of days than the ``63-day
period'' described in sections 701(c)(2)(A) and (d)(4)(A) of the Act
and Sec. Sec. 2590.701-3(a)(1)(iii) and 2590.701-4 (for purposes of
applying the break in coverage rules);
(iv) Provides for a greater number of days than the ``30-day
period'' described in sections 701(b)(2) and (d)(1) of the Act and
Sec. 2590.701-3(b) (for purposes of the enrollment period and
preexisting condition exclusion periods for certain newborns and
children that are adopted or placed for adoption);
(v) Prohibits the imposition of any preexisting condition exclusion
in cases not described in section 701(d) of the Act or expands the
exceptions described therein;
(vi) Requires special enrollment periods in addition to those
required under section 701(f) of the Act; or
(vii) Reduces the maximum period permitted in an affiliation period
under section 701(g)(1)(B) of the Act.
(d) Definitions--(1) State law. For purposes of this section the
term State law includes all laws, decisions, rules, regulations, or
other State action having the effect of law, of any State. A law of the
United States applicable only to the District of Columbia is treated as
a State law rather than a law of the United States.
(2) State. For purposes of this section the term State includes a
State (as defined in Sec. 2590.701-2), any political subdivisions of a
State, or any agency or instrumentality of either.
Sec. 2590.732 Special rules relating to group health plans.
(a) Group health plan--(1) Defined. A group health plan means an
employee welfare benefit plan to the extent that the plan provides
medical care (including items and services paid for as medical care) to
employees (including both current and former employees) or their
dependents (as defined under the terms of the plan) directly or through
insurance, reimbursement, or otherwise.
(2) Determination of number of plans. [Reserved]
(b) General exception for certain small group health plans. The
requirements of this part, other than Sec. 2590.711, do not apply to
any group health plan (and group health insurance coverage) for any
plan year if, on the first day of the plan year, the plan has fewer
than two participants who are current employees.
(c) Excepted benefits--(1) In general. The requirements of this
Part do not apply to any group health plan (or any group health
insurance coverage) in relation to its provision of the benefits
described in paragraph (c)(2), (3), (4), or (5) of this section (or any
combination of these benefits).
(2) Benefits excepted in all circumstances. The following benefits
are excepted in all circumstances--
(i) Coverage only for accident (including accidental death and
dismemberment);
(ii) Disability income coverage;
(iii) Liability insurance, including general liability insurance
and automobile liability insurance;
(iv) Coverage issued as a supplement to liability insurance;
(v) Workers' compensation or similar coverage;
(vi) Automobile medical payment insurance;
(vii) Credit-only insurance (for example, mortgage insurance); and
(viii) Coverage for on-site medical clinics.
(3) Limited excepted benefits--(i) In general. Limited-scope dental
benefits, limited-scope vision benefits, or long-term care benefits are
excepted if they are provided under a separate policy, certificate, or
contract of insurance, or are otherwise not an integral part of a group
health plan as described in paragraph (c)(3)(ii) of this section. In
addition, benefits provided under a health flexible spending
arrangement are excepted benefits if they satisfy the requirements of
paragraph (c)(3)(v) of this section.
(ii) Not an integral part of a group health plan. For purposes of
this paragraph (c)(3), benefits are not an integral part of a group
health plan (whether the benefits are provided through the same plan or
a separate plan) only if the following two requirements are satisfied--
(A) Participants must have the right to elect not to receive
coverage for the benefits; and
(B) If a participant elects to receive coverage for the benefits,
the participant must pay an additional premium or contribution for that
coverage.
(iii) Limited scope--(A) Dental benefits. Limited scope dental
benefits are benefits substantially all of which are for treatment of
the mouth (including any organ or structure within the mouth).
(B) Vision benefits. Limited scope vision benefits are benefits
substantially all of which are for treatment of the eye.
(iv) Long-term care. Long-term care benefits are benefits that are
either--
(A) Subject to State long-term care insurance laws;
(B) For qualified long-term care services, as defined in section
7702B(c)(1) of the Internal Revenue Code, or provided under a qualified
long-term care insurance contract, as defined in section 7702B(b) of
the Internal Revenue Code; or
(C) Based on cognitive impairment or a loss of functional capacity
that is expected to be chronic.
(v) Health flexible spending arrangements. Benefits provided under
a health flexible spending arrangement (as defined in section 106(c)(2)
of the Internal Revenue Code) are excepted for a class of participants
only if they satisfy the following two requirements--
(A) Other group health plan coverage, not limited to excepted
benefits, is made available for the year to the class of participants
by reason of their employment; and
(B) The arrangement is structured so that the maximum benefit
payable to any participant in the class for a year
[[Page 78780]]
cannot exceed two times the participant's salary reduction election
under the arrangement for the year (or, if greater, cannot exceed $500
plus the amount of the participant's salary reduction election). For
this purpose, any amount that an employee can elect to receive as
taxable income but elects to apply to the health flexible spending
arrangement is considered a salary reduction election (regardless of
whether the amount is characterized as salary or as a credit under the
arrangement).
(4) Noncoordinated benefits--(i) Excepted benefits that are not
coordinated. Coverage for only a specified disease or illness (for
example, cancer-only policies) or hospital indemnity or other fixed
indemnity insurance is excepted only if it meets each of the conditions
specified in paragraph (c)(4)(ii) of this section. To be hospital
indemnity or other fixed indemnity insurance, the insurance must pay a
fixed dollar amount per day (or per other period) of hospitalization or
illness (for example, $100/day) regardless of the amount of expenses
incurred.
(ii) Conditions. Benefits are described in paragraph (c)(4)(i) of
this section only if--
(A) The benefits are provided under a separate policy, certificate,
or contract of insurance;
(B) There is no coordination between the provision of the benefits
and an exclusion of benefits under any group health plan maintained by
the same plan sponsor; and
(C) The benefits are paid with respect to an event without regard
to whether benefits are provided with respect to the event under any
group health plan maintained by the same plan sponsor.
(iii) Example. The rules of this paragraph (c)(4) are illustrated
by the following example:
Example. (i) Facts. An employer sponsors a group health plan
that provides coverage through an insurance policy. The policy
provides benefits only for hospital stays at a fixed percentage of
hospital expenses up to a maximum of $100 a day.
(ii) Conclusion. In this Example, even though the benefits under
the policy satisfy the conditions in paragraph (c)(4)(ii) of this
section, because the policy pays a percentage of expenses incurred
rather than a fixed dollar amount, the benefits under the policy are
not excepted benefits under this paragraph (c)(4). This is the
result even if, in practice, the policy pays the maximum of $100 for
every day of hospitalization.
(5) Supplemental benefits. (i) The following benefits are excepted
only if they are provided under a separate policy, certificate, or
contract of insurance--
(A) Medicare supplemental health insurance (as defined under
section 1882(g)(1) of the Social Security Act; also known as Medigap or
MedSupp insurance);
(B) Coverage supplemental to the coverage provided under Chapter
55, Title 10 of the United States Code (also known as TRICARE
supplemental programs); and
(C) Similar supplemental coverage provided to coverage under a
group health plan. To be similar supplemental coverage, the coverage
must be specifically designed to fill gaps in primary coverage, such as
coinsurance or deductibles. Similar supplemental coverage does not
include coverage that becomes secondary or supplemental only under a
coordination-of-benefits provision.
(ii) The rules of this paragraph (c)(5) are illustrated by the
following example:
Example. (i) Facts. An employer sponsors a group health plan
that provides coverage for both active employees and retirees. The
coverage for retirees supplements benefits provided by Medicare, but
does not meet the requirements for a supplemental policy under
section 1882(g)(1) of the Social Security Act.
(ii) Conclusion. In this Example, the coverage provided to
retirees does not meet the definition of supplemental excepted
benefits under this paragraph (c)(5) because the coverage is not
Medicare supplemental insurance as defined under section 1882(g)(1)
of the Social Security Act, is not a TRICARE supplemental program,
and is not supplemental to coverage provided under a group health
plan.
(d) Treatment of partnerships. For purposes of this part:
(1) Treatment as a group health plan. Any plan, fund, or program
that would not be (but for this paragraph (d)) an employee welfare
benefit plan and that is established or maintained by a partnership, to
the extent that the plan, fund, or program provides medical care
(including items and services paid for as medical care) to present or
former partners in the partnership or to their dependents (as defined
under the terms of the plan, fund, or program), directly or through
insurance, reimbursement, or otherwise, is treated (subject to
paragraph (d)(2)) as an employee welfare benefit plan that is a group
health plan.
(2) Employment relationship. In the case of a group health plan,
the term employer also includes the partnership in relation to any bona
fide partner. In addition, the term employee also includes any bona
fide partner. Whether or not an individual is a bona fide partner is
determined based on all the relevant facts and circumstances, including
whether the individual performs services on behalf of the partnership.
(3) Participants of group health plans. In the case of a group
health plan, the term participant also includes any individual
described in paragraph (d)(3)(i) or (ii) of this section if the
individual is, or may become, eligible to receive a benefit under the
plan or the individual's beneficiaries may be eligible to receive any
such benefit.
(i) In connection with a group health plan maintained by a
partnership, the individual is a partner in relation to the
partnership.
(ii) In connection with a group health plan maintained by a self-
employed individual (under which one or more employees are
participants), the individual is the self-employed individual.
(e) Determining the average number of employees. [Reserved]
Sec. 2590.736 Applicability dates.
Sections 2590.701-1 through 2590.701-8 and 2590.731 through
2590.736 are applicable for plan years beginning on or after July 1,
2005. Until the applicability date for this regulation, plans and
issuers are required to continue to comply with the corresponding
sections of 29 CFR part 2590, contained in the 29 CFR, parts 1927 to
end, edition revised as of July 1, 2004.
Signed at Washington, DC, this 1st day of December, 2004.
Ann L. Combs,
Assistant Secretary, Employee Benefits Security Administration, U.S.
Department of Labor.
Department of Health and Human Services
45 CFR Subtitle A
0
For the reasons set forth in the preamble, the Department of Health and
Human Services amends 45 CFR Part 144 and Part 146 as follows:
PART 144--REQUIREMENTS RELATING TO HEALTH INSURANCE COVERAGE
0
A. Part 144 is amended as set forth below:
0
1. The authority citation for Part 144 is revised to read as follows:
Authority: Secs. 2701 through 2763, 2791, and 2792 of the Public
Health Service Act, 42 U.S.C. 300gg through 300gg-63, 300gg-91,
30gg-92 as amended by HIPAA (Public Law 104-191, 110 Stat. 1936),
MHPA (Public Law 104-204, 110 Stat. 2944, as amended by Public Law
107-116, 115 Stat. 2177), NMHPA (Public Law 104-204, 110 Stat.
2935), WHCRA (Public Law 105-277, 112 Stat. 2681-436), and section
103(c)(4) of HIPAA.
[[Page 78781]]
0
2. Section 144.103 is revised to read as follows:
Sec. 144.103 Definitions.
For purposes of parts 146 (group market), 148 (individual market),
and 150 (enforcement) of this subchapter, the following definitions
apply unless otherwise provided:
Affiliation period means a period of time that must expire before
health insurance coverage provided by an HMO becomes effective, and
during which the HMO is not required to provide benefits.
Applicable State authority means, with respect to a health
insurance issuer in a State, the State insurance commissioner or
official or officials designated by the State to enforce the
requirements of 45 CFR parts 146 and 148 for the State involved with
respect to the issuer.
Beneficiary has the meaning given the term under section 3(8) of
the Employee Retirement Income Security Act of 1974 (ERISA), which
States, ``a person designated by a participant, or by the terms of an
employee benefit plan, who is or may become entitled to a benefit''
under the plan.
Bona fide association means, with respect to health insurance
coverage offered in a State, an association that meets the following
conditions:
(1) Has been actively in existence for at least 5 years.
(2) Has been formed and maintained in good faith for purposes other
than obtaining insurance.
(3) Does not condition membership in the association on any health
status-related factor relating to an individual (including an employee
of an employer or a dependent of any employee).
(4) Makes health insurance coverage offered through the association
available to all members regardless of any health status-related factor
relating to the members (or individuals eligible for coverage through a
member).
(5) Does not make health insurance coverage offered through the
association available other than in connection with a member of the
association.
(6) Meets any additional requirements that may be imposed under
State law.
Church plan means a Church plan within the meaning of section 3(33)
of ERISA.
COBRA definitions:
(1) COBRA means Title X of the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended.
(2) COBRA continuation coverage means coverage, under a group
health plan, that satisfies an applicable COBRA continuation provision.
(3) COBRA continuation provision means sections 601-608 of the
Employee Retirement Income Security Act, section 4980B of the Internal
Revenue Code of 1986 (other than paragraph (f)(1) of such section 4980B
insofar as it relates to pediatric vaccines), or Title XXII of the PHS
Act.
(4) Continuation coverage means coverage under a COBRA continuation
provision or a similar State program. Coverage provided by a plan that
is subject to a COBRA continuation provision or similar State program,
but that does not satisfy all the requirements of that provision or
program, will be deemed to be continuation coverage if it allows an
individual to elect to continue coverage for a period of at least 18
months. Continuation coverage does not include coverage under a
conversion policy required to be offered to an individual upon
exhaustion of continuation coverage, nor does it include continuation
coverage under the Federal Employees Health Benefits Program.
(5) Exhaustion of COBRA continuation coverage means that an
individual's COBRA continuation coverage ceases for any reason other
than either failure of the individual to pay premiums on a timely
basis, or for cause (such as making a fraudulent claim or an
intentional misrepresentation of a material fact in connection with the
plan). An individual is considered to have exhausted COBRA continuation
coverage if such coverage ceases--
(i) Due to the failure of the employer or other responsible entity
to remit premiums on a timely basis;
(ii) When the individual no longer resides, lives, or works in the
service area of an HMO or similar program (whether or not within the
choice of the individual) and there is no other COBRA continuation
coverage available to the individual; or
(iii) When the individual incurs a claim that would meet or exceed
a lifetime limit on all benefits and there is no other COBRA
continuation coverage available to the individual.
(6) Exhaustion of continuation coverage means that an individual's
continuation coverage ceases for any reason other than either failure
of the individual to pay premiums on a timely basis, or for cause (such
as making a fraudulent claim or an intentional misrepresentation of a
material fact in connection with the plan). An individual is considered
to have exhausted continuation coverage if--
(i) Coverage ceases due to the failure of the employer or other
responsible entity to remit premiums on a timely basis;
(ii) When the individual no longer resides, lives or works in a
service area of an HMO or similar program (whether or not within the
choice of the individual) and there is no other continuation coverage
available to the individual; or
(iii) When the individual incurs a claim that would meet or exceed
a lifetime limit on all benefits and there is no other continuation
coverage available to the individual.
Condition means a medical condition.
Creditable coverage has the meaning given the term in 45 CFR
146.113(a).
Dependent means any individual who is or may become eligible for
coverage under the terms of a group health plan because of a
relationship to a participant.
Eligible individual, for purposes of--
(1) The group market provisions in 45 CFR part 146, subpart E, is
defined in 45 CFR 146.150(b); and
(2) The individual market provisions in 45 CFR part 148, is defined
in 45 CFR 148.103.
Employee has the meaning given the term under section 3(6) of
ERISA, which States, ``any individual employed by an employer.''
Employer has the meaning given the term under section 3(5) of
ERISA, which States, ``any person acting directly as an employer, or
indirectly in the interest of an employer, in relation to an employee
benefit plan; and includes a group or association of employers acting
for an employer in such capacity.''
Enroll means to become covered for benefits under a group health
plan (that is, when coverage becomes effective), without regard to when
the individual may have completed or filed any forms that are required
in order to become covered under the plan. For this purpose, an
individual who has health coverage under a group health plan is
enrolled in the plan regardless of whether the individual elects
coverage, the individual is a dependent who becomes covered as a result
of an election by a participant, or the individual becomes covered
without an election.
Enrollment date definitions (enrollment date, first day of
coverage, and waiting period) are set forth in 45 CFR 146.111(a)(3)(i)
through (iii).
ERISA stands for the Employee Retirement Income Security Act of
1974, as amended (29 U.S.C. 1001 et seq.).
Excepted benefits, consistent for purposes of the--
(1) Group market provisions in 45 CFR part 146 subpart D, is
defined in 45 CFR 146.145(c); and
[[Page 78782]]
(2) Individual market provisions in 45 CFR part 148, is defined in
45 CFR 148.220.
Federal governmental plan means a governmental plan established or
maintained for its employees by the Government of the United States or
by any agency or instrumentality of such Government.
Genetic information means information about genes, gene products,
and inherited characteristics that may derive from the individual or a
family member. This includes information regarding carrier status and
information derived from laboratory tests that identify mutations in
specific genes or chromosomes, physical medical examinations, family
histories, and direct analysis of genes or chromosomes.
Governmental plan means a governmental plan within the meaning of
section 3(32) of ERISA.
Group health insurance coverage means health insurance coverage
offered in connection with a group health plan.
Group health plan or plan means a group health plan within the
meaning of 45 CFR 146.145(a).
Group market means the market for health insurance coverage offered
in connection with a group health plan. (However, certain very small
plans may be treated as being in the individual market, rather than the
group market; see the definition of individual market in this section.)
Health insurance coverage means benefits consisting of medical care
(provided directly, through insurance or reimbursement, or otherwise)
under any hospital or medical service policy or certificate, hospital
or medical service plan contract, or HMO contract offered by a health
insurance issuer. Health insurance coverage includes group health
insurance coverage, individual health insurance coverage, and short-
term, limited-duration insurance.
Health insurance issuer or issuer means an insurance company,
insurance service, or insurance organization (including an HMO) that is
required to be licensed to engage in the business of insurance in a
State and that is subject to State law that regulates insurance (within
the meaning of section 514(b)(2) of ERISA). This term does not include
a group health plan.
Health maintenance organization or HMO means--
(1) A Federally qualified health maintenance organization (as
defined in section 1301(a) of the PHS Act);
(2) An organization recognized under State law as a health
maintenance organization; or
(3) A similar organization regulated under State law for solvency
in the same manner and to the same extent as such a health maintenance
organization.
Health status-related factor is any factor identified as a health
factor in 45 CFR 146.121(a).
Individual health insurance coverage means health insurance
coverage offered to individuals in the individual market, but does not
include short-term, limited-duration insurance. Individual health
insurance coverage can include dependent coverage.
Individual market means the market for health insurance coverage
offered to individuals other than in connection with a group health
plan. Unless a State elects otherwise in accordance with section
2791(e)(1)(B)(ii) of the PHS Act, such term also includes coverage
offered in connection with a group health plan that has fewer than two
participants who are current employees on the first day of the plan
year.
Internal Revenue Code means the Internal Revenue Code of 1986, as
amended (Title 26, United States Code).
Issuer means a health insurance issuer.
Large employer means, in connection with a group health plan with
respect to a calendar year and a plan year, an employer who employed an
average of at least 51 employees on business days during the preceding
calendar year and who employs at least 2 employees on the first day of
the plan year, unless otherwise provided under State law.
Large group market means the health insurance market under which
individuals obtain health insurance coverage (directly or through any
arrangement) on behalf of themselves (and their dependents) through a
group health plan maintained by a large employer, unless otherwise
provided under State law.
Late enrollment definitions (late enrollee and late enrollment) are
set forth in 45 CFR 146.111(a)(3)(v) and (vi).
Medical care means amounts paid for--
(1) The diagnosis, cure, mitigation, treatment, or prevention of
disease, or amounts paid for the purpose of affecting any structure or
function of the body;
(2) Transportation primarily for and essential to medical care
referred to in paragraph (1) of this definition; and
(3) Insurance covering medical care referred to in paragraphs (1)
and (2) of this definition.
Medical condition or condition means any condition, whether
physical or mental, including, but not limited to, any condition
resulting from illness, injury (whether or not the injury is
accidental), pregnancy, or congenital malformation. However, genetic
information is not a condition.
Network plan means health insurance coverage of a health insurance
issuer under which the financing and delivery of medical care
(including items and services paid for as medical care) are provided,
in whole or in part, through a defined set of providers under contract
with the issuer.
Non-Federal governmental plan means a governmental plan that is not
a Federal governmental plan.
Participant has the meaning given the term under section 3(7) of
ERISA, which States, ``any employee or former employee of an employer,
or any member or former member of an employee organization, who is or
may become eligible to receive a benefit of any type from an employee
benefit plan which covers employees of such employer or members of such
organization, or whose beneficiaries may be eligible to receive any
such benefit.''
PHS Act stands for the Public Health Service Act (42 U.S.C. 201 et
seq.).
Placement, or being placed, for adoption means the assumption and
retention of a legal obligation for total or partial support of a child
by a person with whom the child has been placed in anticipation of the
child's adoption. The child's placement for adoption with such person
ends upon the termination of such legal obligation.
Plan sponsor has the meaning given the term under section 3(16)(B)
of ERISA, which states, ``(i) the employer in the case of an employee
benefit plan established or maintained by a single employer, (ii) the
employee organization in the case of a plan established or maintained
by an employee organization, or (iii) in the case of a plan established
or maintained by two or more employers or jointly by one or more
employers and one or more employee organizations, the association,
committee, joint board of trustees, or other similar group of
representatives of the parties who establish or maintain the plan.''
Plan year means the year that is designated as the plan year in the
plan document of a group health plan, except that if the plan document
does not designate a plan year or if there is no plan document, the
plan year is--
(1) The deductible or limit year used under the plan;
(2) If the plan does not impose deductibles or limits on a yearly
basis, then the plan year is the policy year;
(3) If the plan does not impose deductibles or limits on a yearly
basis, and either the plan is not insured or the
[[Page 78783]]
insurance policy is not renewed on an annual basis, then the plan year
is the employer's taxable year; or
(4) In any other case, the plan year is the calendar year.
Preexisting condition exclusion has the meaning given the term in
45 CFR 146.111(a)(1), with respect to group health plans and group
health insurance coverage. With respect to individual market health
insurance issuers or other entities providing coverage to federally
eligible individuals pursuant to 45 CFR part 148, preexisting condition
exclusion means a limitation or exclusion of benefits relating to a
condition based on the fact that the condition was present before the
first day of coverage, whether or not any medical advice, diagnosis,
care, or treatment was recommended or received before that day. A
preexisting condition exclusion includes any exclusion applicable to an
individual as a result of information that is obtained relating to an
individual's health status before the individual's first day of
coverage, such as a condition identified as a result of a pre-
enrollment questionnaire or physical examination given to the
individual, or review of medical records relating to the pre-enrollment
period.
Public health plan has the meaning given the term in 45 CFR
146.113(a)(1)(ix).
Short-term, limited-duration insurance means health insurance
coverage provided pursuant to a contract with an issuer that has an
expiration date specified in the contract (taking into account any
extensions that may be elected by the policyholder without the issuer's
consent) that is less than 12 months after the original effective date
of the contract.
Significant break in coverage has the meaning given the term in 45
CFR 146.113(b)(2)(iii).
Small employer means, in connection with a group health plan with
respect to a calendar year and a plan year, an employer who employed an
average of at least 2 but not more than 50 employees on business days
during the preceding calendar year and who employs at least 2 employees
on the first day of the plan year, unless otherwise provided under
State law.
Small group market means the health insurance market under which
individuals obtain health insurance coverage (directly or through any
arrangement) on behalf of themselves (and their dependents) through a
group health plan maintained by a small employer.
Special enrollment means enrollment in a group health plan or group
health insurance coverage under the rights described in 45 CFR 146.117.
State means each of the several States, the District of Columbia,
Puerto Rico, the Virgin Islands, Guam, American Samoa, and the Northern
Mariana Islands.
State health benefits risk pool has the meaning given the term in
45 CFR Sec. 146.113(a)(1)(vii).
Waiting period has the meaning given the term in 45 CFR
146.111(a)(3)(iii).
PART 146--REQUIREMENTS FOR THE GROUP HEALTH INSURANCE MARKET
0
B. Part 146 is amended as set forth below:
0
1. The authority citation for Part 146 is revised to read as follows:
Authority: Secs. 2701 through 2763, 2791, and 2792 of the Public
Health Service Act, 42 U.S.C. 300gg through 300gg-63, 300gg-91,
30gg-92 as amended by HIPAA (Public Law 104-191, 110 Stat. 1936),
MHPA (Public Law 104-204, 110 Stat. 2944, as amended by Public Law
107-116, 115 Stat. 2177), NMHPA (Public Law 104-204, 110 Stat.
2935), WHCRA (Public Law 105-277, 112 Stat. 2681-436), and section
103(c)(4) of HIPAA.
0
2. Revise Sec. 146.111 to read as follows:
Sec. 146.111 Limitations on preexisting condition exclusion period.
(a) Preexisting condition exclusion--(1) Defined.--(i) A
preexisting condition exclusion means a limitation or exclusion of
benefits relating to a condition based on the fact that the condition
was present before the effective date of coverage under a group health
plan or group health insurance coverage, whether or not any medical
advice, diagnosis, care, or treatment was recommended or received
before that day. A preexisting condition exclusion includes any
exclusion applicable to an individual as a result of information
relating to an individual's health status before the individual's
effective date of coverage under a group health plan or group health
insurance coverage, such as a condition identified as a result of a
pre-enrollment questionnaire or physical examination given to the
individual, or review of medical records relating to the pre-enrollment
period.
(ii) Examples. The rules of this paragraph (a)(1) are illustrated
by the following examples:
Example 1. (i) Facts. A group health plan provides benefits
solely through an insurance policy offered by Issuer S. At the
expiration of the policy, the plan switches coverage to a policy
offered by Issuer T. Issuer T's policy excludes benefits for any
prosthesis if the body part was lost before the effective date of
coverage under the policy.
(ii) Conclusion. In this Example 1, the exclusion of benefits
for any prosthesis if the body part was lost before the effective
date of coverage is a preexisting condition exclusion because it
operates to exclude benefits for a condition based on the fact that
the condition was present before the effective date of coverage
under the policy. (Therefore, the exclusion of benefits is required
to comply with the limitations on preexisting condition exclusions
in this section. For an example illustrating the application of
these limitations to a succeeding insurance policy, see Example 3 of
paragraph (a)(3)(iv) of this section.)
Example 2. (i) Facts. A group health plan provides coverage for
cosmetic surgery in cases of accidental injury, but only if the
injury occurred while the individual was covered under the plan.
(ii) Conclusion. In this Example 2, the plan provision excluding
cosmetic surgery benefits for individuals injured before enrolling
in the plan is a preexisting condition exclusion because it operates
to exclude benefits relating to a condition based on the fact that
the condition was present before the effective date of coverage. The
plan provision, therefore, is subject to the limitations on
preexisting condition exclusions in this section.
Example 3. (i) Facts. A group health plan provides coverage for
the treatment of diabetes, generally not subject to any lifetime
dollar limit. However, if an individual was diagnosed with diabetes
before the effective date of coverage under the plan, diabetes
coverage is subject to a lifetime limit of $10,000.
(ii) Conclusion. In this Example 3, the $10,000 lifetime limit
is a preexisting condition exclusion because it limits benefits for
a condition based on the fact that the condition was present before
the effective date of coverage. The plan provision, therefore, is
subject to the limitations on preexisting condition exclusions in
this section.
Example 4. (i) Facts. A group health plan provides coverage for
the treatment of acne, subject to a lifetime limit of $2,000. The
plan counts against this $2,000 lifetime limit acne treatment
benefits provided under prior health coverage.
(ii) Conclusion. In this Example 4, counting benefits for a
specific condition provided under prior health coverage against a
lifetime limit for that condition is a preexisting condition
exclusion because it operates to limit benefits for a condition
based on the fact that the condition was present before the
effective date of coverage. The plan provision, therefore, is
subject to the limitations on preexisting condition exclusions in
this section.
Example 5. (i) Facts. When an individual's coverage begins under
a group health plan, the individual generally becomes eligible for
all benefits. However, benefits for pregnancy are not available
until the individual has been covered under the plan for 12 months.
(ii) Conclusion. In this Example 5, the requirement to be
covered under the plan for 12 months to be eligible for pregnancy
benefits is a subterfuge for a preexisting condition exclusion
because it is designed to
[[Page 78784]]
exclude benefits for a condition (pregnancy) that arose before the
effective date of coverage. Because a plan is prohibited under
paragraph (b)(5) of this section from imposing any preexisting
condition exclusion on pregnancy, the plan provision is prohibited.
However, if the plan provision included an exception for women who
were pregnant before the effective date of coverage under the plan
(so that the provision applied only to women who became pregnant on
or after the effective date of coverage) the plan provision would
not be a preexisting condition exclusion (and would not be
prohibited by paragraph (b)(5) of this section).
Example 6. (i) Facts. A group health plan provides coverage for
medically necessary items and services, generally including
treatment of heart conditions. However, the plan does not cover
those same items and services when used for treatment of congenital
heart conditions.
(ii) Conclusion. In this Example 6, the exclusion of coverage
for treatment of congenital heart conditions is a preexisting
condition exclusion because it operates to exclude benefits relating
to a condition based on the fact that the condition was present
before the effective date of coverage. The plan provision,
therefore, is subject to the limitations on preexisting condition
exclusions in this section.
Example 7. (i) Facts. A group health plan generally provides
coverage for medically necessary items and services. However, the
plan excludes coverage for the treatment of cleft palate.
(ii) Conclusion. In this Example 7, the exclusion of coverage
for treatment of cleft palate is not a preexisting condition
exclusion because the exclusion applies regardless of when the
condition arose relative to the effective date of coverage. The plan
provision, therefore, is not subject to the limitations on
preexisting condition exclusions in this section.
Example 8. (i) Facts. A group health plan provides coverage for
treatment of cleft palate, but only if the individual being treated
has been continuously covered under the plan from the date of birth.
(ii) Conclusion. In this Example 8, the exclusion of coverage
for treatment of cleft palate for individuals who have not been
covered under the plan from the date of birth operates to exclude
benefits in relation to a condition based on the fact that the
condition was present before the effective date of coverage. The
plan provision, therefore, is subject to the limitations on
preexisting condition exclusions in this section.
(2) General rules. Subject to paragraph (b) of this section
(prohibiting the imposition of a preexisting condition exclusion with
respect to certain individuals and conditions), a group health plan,
and a health insurance issuer offering group health insurance coverage,
may impose, with respect to a participant or beneficiary, a preexisting
condition exclusion only if the requirements of this paragraph (a)(2)
are satisfied.
(i) 6-month look-back rule. A preexisting condition exclusion must
relate to a condition (whether physical or mental), regardless of the
cause of the condition, for which medical advice, diagnosis, care, or
treatment was recommended or received within the 6-month period (or
such shorter period as applies under the plan) ending on the enrollment
date.
(A) For purposes of this paragraph (a)(2)(i), medical advice,
diagnosis, care, or treatment is taken into account only if it is
recommended by, or received from, an individual licensed or similarly
authorized to provide such services under State law and operating
within the scope of practice authorized by State law.
(B) For purposes of this paragraph (a)(2)(i), the 6-month period
ending on the enrollment date begins on the 6-month anniversary date
preceding the enrollment date. For example, for an enrollment date of
August 1, 1998, the 6-month period preceding the enrollment date is the
period commencing on February 1, 1998 and continuing through July 31,
1998. As another example, for an enrollment date of August 30, 1998,
the 6-month period preceding the enrollment date is the period
commencing on February 28, 1998 and continuing through August 29, 1998.
(C) The rules of this paragraph (a)(2)(i) are illustrated by the
following examples:
Example 1. (i) Facts. Individual A is diagnosed with a medical
condition 8 months before A's enrollment date in Employer R's group
health plan. A's doctor recommends that A take a prescription drug
for 3 months, and A follows the recommendation.
(ii) Conclusion. In this Example 1, Employer R's plan may impose
a preexisting condition exclusion with respect to A's condition
because A received treatment during the 6-month period ending on A's
enrollment date in Employer R's plan by taking the prescription
medication during that period. However, if A did not take the
prescription drug during the 6-month period, Employer R's plan would
not be able to impose a preexisting condition exclusion with respect
to that condition.
Example 2. (i) Facts. Individual B is treated for a medical
condition 7 months before the enrollment date in Employer S's group
health plan. As part of such treatment, B's physician recommends
that a follow-up examination be given 2 months later. Despite this
recommendation, B does not receive a follow-up examination, and no
other medical advice, diagnosis, care, or treatment for that
condition is recommended to B or received by B during the 6-month
period ending on B's enrollment date in Employer S's plan.
(ii) Conclusion. In this Example 2, Employer S's plan may not
impose a preexisting condition exclusion with respect to the
condition for which B received treatment 7 months prior to the
enrollment date.
Example 3. (i) Facts. Same facts as Example 2, except that
Employer S's plan learns of the condition and attaches a rider to
B's certificate of coverage excluding coverage for the condition.
Three months after enrollment, B's condition recurs, and Employer
S's plan denies payment under the rider.
(ii) Conclusion. In this Example 3, the rider is a preexisting
condition exclusion and Employer S's plan may not impose a
preexisting condition exclusion with respect to the condition for
which B received treatment 7 months prior to the enrollment date.
(In addition, such a rider would violate the provisions of Sec.
146.121, even if B had received treatment for the condition within
the 6-month period ending on the enrollment date.)
Example 4. (i) Facts. Individual C has asthma and is treated for
that condition several times during the 6-month period before C's
enrollment date in Employer T's plan. Three months after the
enrollment date, C begins coverage under Employer T's plan. Two
months later, C is hospitalized for asthma.
(ii) Conclusion. In this Example 4, Employer T's plan may impose
a preexisting condition exclusion with respect to C's asthma because
care relating to C's asthma was received during the 6-month period
ending on C's enrollment date (which, under the rules of paragraph
(a)(3)(i) of this section, is the first day of the waiting period).
Example 5. (i) Facts. Individual D, who is subject to a
preexisting condition exclusion imposed by Employer U's plan, has
diabetes, as well as retinal degeneration, a foot condition, and
poor circulation (all of which are conditions that may be directly
attributed to diabetes). D receives treatment for these conditions
during the 6-month period ending on D's enrollment date in Employer
U's plan. After enrolling in the plan, D stumbles and breaks a leg.
(ii) Conclusion. In this Example 5, the leg fracture is not a
condition related to D's diabetes, retinal degeneration, foot
condition, or poor circulation, even though they may have
contributed to the accident. Therefore, benefits to treat the leg
fracture cannot be subject to a preexisting condition exclusion.
However, any additional medical services that may be needed because
of D's preexisting diabetes, poor circulation, or retinal
degeneration that would not be needed by another patient with a
broken leg who does not have these conditions may be subject to the
preexisting condition exclusion imposed under Employer U's plan.
(ii) Maximum length of preexisting condition exclusion. A
preexisting condition exclusion is not permitted to extend for more
than 12 months (18 months in the case of a late enrollee) after the
enrollment date. For example, for an enrollment date of August 1, 1998,
the 12-month period after the enrollment date is the period commencing
on August 1, 1998 and continuing through July 31, 1999; the
[[Page 78785]]
18-month period after the enrollment date is the period commencing on
August 1, 1998 and continuing through January 31, 2000.
(iii) Reducing a preexisting condition exclusion period by
creditable coverage--(A) The period of any preexisting condition
exclusion that would otherwise apply to an individual under a group
health plan is reduced by the number of days of creditable coverage the
individual has as of the enrollment date, as counted under Sec.
146.113. Creditable coverage may be evidenced through a certificate of
creditable coverage (required under Sec. 146.115(a)), or through other
means in accordance with the rules of Sec. 146.115(c).
(B) The rules of this paragraph (a)(2)(iii) are illustrated by the
following example:
Example. (i) Facts. Individual D works for Employer X and has
been covered continuously under X's group health plan. D's spouse
works for Employer Y. Y maintains a group health plan that imposes a
12-month preexisting condition exclusion (reduced by creditable
coverage) on all new enrollees. D enrolls in Y's plan, but also
stays covered under X's plan. D presents Y's plan with evidence of
creditable coverage under X's plan.
(ii) Conclusion. In this Example, Y's plan must reduce the
preexisting condition exclusion period that applies to D by the
number of days of coverage that D had under X's plan as of D's
enrollment date in Y's plan (even though D's coverage under X's plan
was continuing as of that date).
(iv) Other standards. See Sec. 146.121 for other standards in this
Subpart A that may apply with respect to certain benefit limitations or
restrictions under a group health plan. Other laws may also apply, such
as the Uniformed Services Employment and Reemployment Rights Act
(USERRA), which can affect the application of a preexisting condition
exclusion to certain individuals who are reinstated in a group health
plan following active military service.
(3) Enrollment definitions--(i) Enrollment date means the first day
of coverage (as described in paragraph (a)(3)(ii) of this section) or,
if there is a waiting period, the first day of the waiting period. If
an individual receiving benefits under a group health plan changes
benefit packages, or if the plan changes group health insurance
issuers, the individual's enrollment date does not change.
(ii) First day of coverage means, in the case of an individual
covered for benefits under a group health plan, the first day of
coverage under the plan and, in the case of an individual covered by
health insurance coverage in the individual market, the first day of
coverage under the policy or contract.
(iii) Waiting period means the period that must pass before
coverage for an employee or dependent who is otherwise eligible to
enroll under the terms of a group health plan can become effective. If
an employee or dependent enrolls as a late enrollee or special
enrollee, any period before such late or special enrollment is not a
waiting period. If an individual seeks coverage in the individual
market, a waiting period begins on the date the individual submits a
substantially complete application for coverage and ends on--
(A) If the application results in coverage, the date coverage
begins;
(B) If the application does not result in coverage, the date on
which the application is denied by the issuer or the date on which the
offer of coverage lapses.
(iv) The rules of paragraphs (a)(3)(i), (ii), and (iii) of this
section are illustrated by the following examples:
Example 1. (i) Facts. Employer V's group health plan provides
for coverage to begin on the first day of the first payroll period
following the date an employee is hired and completes the applicable
enrollment forms, or on any subsequent January 1 after completion of
the applicable enrollment forms. Employer V's plan imposes a
preexisting condition exclusion for 12 months (reduced by the
individual's creditable coverage) following an individual's
enrollment date. Employee E is hired by Employer V on October 13,
1998 and on October 14, 1998 E completes and files all the forms
necessary to enroll in the plan. E's coverage under the plan becomes
effective on October 25, 1998 (which is the beginning of the first
payroll period after E's date of hire).
(ii) Conclusion. In this Example 1, E's enrollment date is
October 13, 1998 (which is the first day of the waiting period for
E's enrollment and is also E's date of hire). Accordingly, with
respect to E, the permissible 6-month period in paragraph (a)(2)(i)
is the period from April 13, 1998 through October 12, 1998, the
maximum permissible period during which Employer V's plan can apply
a preexisting condition exclusion under paragraph (a)(2)(ii) is the
period from October 13, 1998 through October 12, 1999, and this
period must be reduced under paragraph (a)(2)(iii) by E's days of
creditable coverage as of October 13, 1998.
Example 2. (i) Facts. A group health plan has two benefit
package options, Option 1 and Option 2. Under each option a 12-month
preexisting condition exclusion is imposed. Individual B is enrolled
in Option 1 on the first day of employment with the employer
maintaining the plan, remains enrolled in Option 1 for more than one
year, and then decides to switch to Option 2 at open season.
(ii) Conclusion. In this Example 2, B cannot be subject to any
preexisting condition exclusion under Option 2 because any
preexisting condition exclusion period would have to begin on B's
enrollment date, which is B's first day of coverage, rather than the
date that B enrolled in Option 2. Therefore, the preexisting
condition exclusion period expired before B switched to Option 2.
Example 3. (i) Facts. On May 13, 1997, Individual E is hired by
an employer and enrolls in the employer's group health plan. The
plan provides benefits solely through an insurance policy offered by
Issuer S. On December 27, 1998, E's leg is injured in an accident
and the leg is amputated. On January 1, 1999, the plan switches
coverage to a policy offered by Issuer T. Issuer T's policy excludes
benefits for any prosthesis if the body part was lost before the
effective date of coverage under the policy.
(ii) Conclusion. In this Example 3, E's enrollment date is May
13, 1997, E's first day of coverage. Therefore, the permissible 6-
month look-back period for the preexisting condition exclusion
imposed under Issuer T's policy begins on November 13, 1996 and ends
on May 12, 1997. In addition, the 12-month maximum permissible
preexisting condition exclusion period begins on May 13, 1997 and
ends on May 12, 1998. Accordingly, because no medical advice,
diagnosis, care, or treatment was recommended to or received by E
for the leg during the 6-month look-back period (even though medical
care was provided within the 6-month period preceding the effective
date of E's coverage under Issuer T's policy), Issuer T may not
impose any preexisting condition exclusion with respect to E.
Moreover, even if E had received treatment during the 6-month look-
back period, Issuer T still would not be permitted to impose a
preexisting condition exclusion because the 12-month maximum
permissible preexisting condition exclusion period expired on May
12, 1998 (before the effective date of E's coverage under Issuer T's
policy).
Example 4. (i) Facts. A group health plan limits eligibility for
coverage to full-time employees of Employer Y. Coverage becomes
effective on the first day of the month following the date the
employee becomes eligible. Employee C begins working full-time for
Employer Y on April 11. Prior to this date, C worked part-time for
Y. C enrolls in the plan and coverage is effective May 1.
(ii) Conclusion. In this Example 4, C's enrollment date is April
11 and the period from April 11 through April 30 is a waiting
period. The period while C was working part-time, and therefore not
in an eligible class of employees, is not part of the waiting
period.
Example 5. (i) Facts. To be eligible for coverage under a
multiemployer group health plan in the current calendar quarter, the
plan requires an individual to have worked 250 hours in covered
employment during the previous quarter. If the hours requirement is
satisfied, coverage becomes effective on the first day of the
current calendar quarter. Employee D begins work on January 28 and
does not work 250 hours in covered employment during the first
quarter (ending March 31). D works at least 250 hours in the second
quarter (ending June 30) and is enrolled in the plan with coverage
effective July 1 (the first day of the third quarter).
[[Page 78786]]
(ii) Conclusion. In this Example 5, D's enrollment date is the
first day of the quarter during which D satisfies the hours
requirement, which is April 1. The period from April 1 through June 30
is a waiting period.
(v) Late enrollee means an individual whose enrollment in a plan is
a late enrollment.
(vi) (A) Late enrollment means enrollment of an individual under a
group health plan other than--
(1) On the earliest date on which coverage can become effective for
the individual under the terms of the plan; or
(2) Through special enrollment. (For rules relating to special
enrollment, see Sec. 146.117.)
(B) If an individual ceases to be eligible for coverage under the
plan, and then subsequently becomes eligible for coverage under the
plan, only the individual's most recent period of eligibility is taken
into account in determining whether the individual is a late enrollee
under the plan with respect to the most recent period of coverage.
Similar rules apply if an individual again becomes eligible for
coverage following a suspension of coverage that applied generally
under the plan.
(vii) Examples. The rules of paragraphs (a)(3)(v) and (vi) of this
section are illustrated by the following examples:
Example 1. (i) Facts. Employee F first becomes eligible to be
covered by Employer W's group health plan on January 1, 1999 but
elects not to enroll in the plan until a later annual open
enrollment period, with coverage effective January 1, 2001. F has no
special enrollment right at that time.
(ii) Conclusion. In this Example 1, F is a late enrollee with
respect to F's coverage that became effective under the plan on
January 1, 2001.
Example 2. (i) Facts. Same facts as Example 1, except that F
terminates employment with Employer W on July 1, 1999 without having
had any health insurance coverage under the plan. F is rehired by
Employer W on January 1, 2000 and is eligible for and elects
coverage under Employer W's plan effective on January 1, 2000.
(ii) Conclusion. In this Example 2, F would not be a late
enrollee with respect to F's coverage that became effective on
January 1, 2000.
(b) Exceptions pertaining to preexisting condition exclusions--(1)
Newborns--(i) In general. Subject to paragraph (b)(3) of this section,
a group health plan, and a health insurance issuer offering group
health insurance coverage, may not impose any preexisting condition
exclusion on a child who, within 30 days after birth, is covered under
any creditable coverage. Accordingly, if a child is enrolled in a group
health plan (or other creditable coverage) within 30 days after birth
and subsequently enrolls in another group health plan without a
significant break in coverage (as described in Sec.
146.113(b)(2)(iii)), the other plan may not impose any preexisting
condition exclusion on the child.
(ii) Examples. The rules of this paragraph (b)(1) are illustrated
by the following examples:
Example 1. (i) Facts. Individual E, who has no prior creditable
coverage, begins working for Employer W and has accumulated 210 days
of creditable coverage under Employer W's group health plan on the
date E gives birth to a child. Within 30 days after the birth, the
child is enrolled in the plan. Ninety days after the birth, both E
and the child terminate coverage under the plan. Both E and the
child then experience a break in coverage of 45 days before E is
hired by Employer X and the two are enrolled in Employer X's group
health plan.
(ii) Conclusion. In this Example 1, because E's child is
enrolled in Employer W's plan within 30 days after birth, no
preexisting condition exclusion may be imposed with respect to the
child under Employer W's plan. Likewise, Employer X's plan may not
impose any preexisting condition exclusion on E's child because the
child was covered under creditable coverage within 30 days after
birth and had no significant break in coverage before enrolling in
Employer X's plan. On the other hand, because E had only 300 days of
creditable coverage prior to E's enrollment date in Employer X's
plan, Employer X's plan may impose a preexisting condition exclusion
on E for up to 65 days (66 days if the 12-month period after E's
enrollment date in X's plan includes February 29).
Example 2. (i) Facts. Individual F is enrolled in a group health
plan in which coverage is provided through a health insurance
issuer. F gives birth. Under State law applicable to the health
insurance issuer, health care expenses incurred for the child during
the 30 days following birth are covered as part of F's coverage.
Although F may obtain coverage for the child beyond 30 days by
timely requesting special enrollment and paying an additional
premium, the issuer is prohibited under State law from recouping the
cost of any expenses incurred for the child within the 30-day period
if the child is not later enrolled.
(ii) Conclusion. In this Example 2, the child is covered under
creditable coverage within 30 days after birth, regardless of
whether the child enrolls as a special enrollee under the plan.
Therefore, no preexisting condition exclusion may be imposed on the
child unless the child has a significant break in coverage.
(2) Adopted children. Subject to paragraph (b)(3) of this section,
a group health plan, and a health insurance issuer offering group
health insurance coverage, may not impose any preexisting condition
exclusion on a child who is adopted or placed for adoption before
attaining 18 years of age and who, within 30 days after the adoption or
placement for adoption, is covered under any creditable coverage.
Accordingly, if a child is enrolled in a group health plan (or other
creditable coverage) within 30 days after adoption or placement for
adoption and subsequently enrolls in another group health plan without
a significant break in coverage (as described in Sec.
146.113(b)(2)(iii)), the other plan may not impose any preexisting
condition exclusion on the child. This rule does not apply to coverage
before the date of such adoption or placement for adoption.
(3) Significant break in coverage. Paragraphs (b)(1) and (2) of
this section no longer apply to a child after a significant break in
coverage. (See Sec. 146.113(b)(2)(iii) for rules relating to the
determination of a significant break in coverage.)
(4) Special enrollment. For special enrollment rules relating to
new dependents, see Sec. 146.117(b).
(5) Pregnancy. A group health plan, and a health insurance issuer
offering group health insurance coverage, may not impose a preexisting
condition exclusion relating to pregnancy.
(6) Genetic information--(i) A group health plan, and a health
insurance issuer offering group health insurance coverage, may not
impose a preexisting condition exclusion relating to a condition based
solely on genetic information. However, if an individual is diagnosed
with a condition, even if the condition relates to genetic information,
the plan may impose a preexisting condition exclusion with respect to
the condition, subject to the other limitations of this section.
(ii) The rules of this paragraph (b)(6) are illustrated by the
following example:
Example. (i) Facts. Individual A enrolls in a group health plan
that imposes a 12-month maximum preexisting condition exclusion.
Three months before A's enrollment, A's doctor told A that, based on
genetic information, A has a predisposition towards breast cancer. A
was not diagnosed with breast cancer at any time prior to A's
enrollment date in the plan. Nine months after A's enrollment date
in the plan, A is diagnosed with breast cancer.
(ii) Conclusion. In this Example, the plan may not impose a
preexisting condition exclusion with respect to A's breast cancer
because, prior to A's enrollment date, A was not diagnosed with
breast cancer.
(c) General notice of preexisting condition exclusion. A group
health plan imposing a preexisting condition exclusion, and a health
insurance issuer offering group health insurance
[[Page 78787]]
coverage subject to a preexisting condition exclusion, must provide a
written general notice of preexisting condition exclusion to
participants under the plan and cannot impose a preexisting condition
exclusion with respect to a participant or a dependent of the
participant until such a notice is provided.
(1) Manner and timing. A plan or issuer must provide the general
notice of preexisting condition exclusion as part of any written
application materials distributed by the plan or issuer for enrollment.
If the plan or issuer does not distribute such materials, the notice
must be provided by the earliest date following a request for
enrollment that the plan or issuer, acting in a reasonable and prompt
fashion, can provide the notice.
(2) Content. The general notice of preexisting condition exclusion
must notify participants of the following:
(i) The existence and terms of any preexisting condition exclusion
under the plan. This description includes the length of the plan's
look-back period (which is not to exceed 6 months under paragraph
(a)(2)(i) of this section); the maximum preexisting condition exclusion
period under the plan (which cannot exceed 12 months (or 18-months for
late enrollees) under paragraph (a)(2)(ii) of this section); and how
the plan will reduce the maximum preexisting condition exclusion period
by creditable coverage (described in paragraph (a)(2)(iii) of this
section).
(ii) A description of the rights of individuals to demonstrate
creditable coverage, and any applicable waiting periods, through a
certificate of creditable coverage (as required by Sec. 146.115(a)) or
through other means (as described in Sec. 146.115(c)). This must
include a description of the right of the individual to request a
certificate from a prior plan or issuer, if necessary, and a statement
that the current plan or issuer will assist in obtaining a certificate
from any prior plan or issuer, if necessary.
(iii) A person to contact (including an address or telephone
number) for obtaining additional information or assistance regarding
the preexisting condition exclusion.
(3) Duplicate notices not required. If a notice satisfying the
requirements of this paragraph (c) is provided to an individual, the
obligation to provide a general notice of preexisting condition
exclusion with respect to that individual is satisfied for both the
plan and the issuer.
(4) Example with sample language. The rules of this paragraph (c)
are illustrated by the following example, which includes sample
language that plans and issuers can use as a basis for preparing their
own notices to satisfy the requirements of this paragraph (c):
Example. (i) Facts. A group health plan makes coverage effective
on the first day of the first calendar month after hire and on each
January 1 following an open season. The plan imposes a 12-month
maximum preexisting condition exclusion (18 months for late
enrollees) and uses a 6-month look-back period. As part of the
enrollment application materials, the plan provides the following
statement:
This plan imposes a preexisting condition exclusion. This means
that if you have a medical condition before coming to our plan, you
might have to wait a certain period of time before the plan will
provide coverage for that condition. This exclusion applies only to
conditions for which medical advice, diagnosis, care, or treatment
was recommended or received within a six-month period. Generally,
this six-month period ends the day before your coverage becomes
effective. However, if you were in a waiting period for coverage,
the six-month period ends on the day before the waiting period
begins. The preexisting condition exclusion does not apply to
pregnancy nor to a child who is enrolled in the plan within 30 days
after birth, adoption, or placement for adoption.
This exclusion may last up to 12 months (18 months if you are a
late enrollee) from your first day of coverage, or, if you were in a
waiting period, from the first day of your waiting period. However,
you can reduce the length of this exclusion period by the number of
days of your prior ``creditable coverage.'' Most prior health
coverage is creditable coverage and can be used to reduce the
preexisting condition exclusion if you have not experienced a break
in coverage of at least 63 days. To reduce the 12-month (or 18-
month) exclusion period by your creditable coverage, you should give
us a copy of any certificates of creditable coverage you have. If
you do not have a certificate, but you do have prior health
coverage, we will help you obtain one from your prior plan or
issuer. There are also other ways that you can show you have
creditable coverage. Please contact us if you need help
demonstrating creditable coverage.
All questions about the preexisting condition exclusion and
creditable coverage should be directed to Individual B at Address M
or Telephone Number N.
(ii) Conclusion. In this Example, the plan satisfies the general
notice requirement of this paragraph (c), and thus also satisfies
this requirement for any issuer providing the coverage.
(d) Determination of creditable coverage--(1) Determination within
reasonable time. If a group health plan or health insurance issuer
offering group health insurance coverage receives creditable coverage
information under Sec. 146.115, the plan or issuer is required, within
a reasonable time following receipt of the information, to make a
determination regarding the amount of the individual's creditable
coverage and the length of any exclusion that remains. Whether this
determination is made within a reasonable time depends on the relevant
facts and circumstances. Relevant facts and circumstances include
whether a plan's application of a preexisting condition exclusion would
prevent an individual from having access to urgent medical care.
(2) No time limit on presenting evidence of creditable coverage. A
plan or issuer may not impose any limit on the amount of time that an
individual has to present a certificate or other evidence of creditable
coverage.
(3) Example. The rules of this paragraph (d) are illustrated by the
following example:
Example. (i) Facts. A group health plan imposes a preexisting
condition exclusion period of 12 months. After receiving the general
notice of preexisting condition exclusion, Individual H develops an
urgent health condition before receiving a certificate of creditable
coverage from H's prior group health plan. H attests to the period
of prior coverage, presents corroborating documentation of the
coverage period, and authorizes the plan to request a certificate on
H's behalf in accordance with the rules of Sec. 146.115.
(ii) Conclusion. In this Example, the plan must review the
evidence presented by H and make a determination of creditable
coverage within a reasonable time that is consistent with the
urgency of H's health condition. (This determination may be modified
as permitted under paragraph (f) of this section.)
(e) Individual notice of period of preexisting condition exclusion.
After an individual has presented evidence of creditable coverage and
after the plan or issuer has made a determination of creditable
coverage under paragraph (d) of this section, the plan or issuer must
provide the individual a written notice of the length of preexisting
condition exclusion that remains after offsetting for prior creditable
coverage. This individual notice is not required to identify any
medical conditions specific to the individual that could be subject to
the exclusion. A plan or issuer is not required to provide this notice
if the plan or issuer does not impose any preexisting condition
exclusion on the individual or if the plan's preexisting condition
exclusion is completely offset by the individual's prior creditable
coverage.
(1) Manner and timing. The individual notice must be provided by
the earliest date following a determination that the plan or issuer,
acting in a reasonable and prompt fashion, can provide the notice.
(2) Content. A plan or issuer must disclose--
[[Page 78788]]
(i) Its determination of any preexisting condition exclusion period
that applies to the individual (including the last day on which the
preexisting condition exclusion applies);
(ii) The basis for such determination, including the source and
substance of any information on which the plan or issuer relied;
(iii) An explanation of the individual's right to submit additional
evidence of creditable coverage; and
(iv) A description of any applicable appeal procedures established
by the plan or issuer.
(3) Duplicate notices not required. If a notice satisfying the
requirements of this paragraph (e) is provided to an individual, the
obligation to provide this individual notice of preexisting condition
exclusion with respect to that individual is satisfied for both the
plan and the issuer.
(4) Examples. The rules of this paragraph (e) are illustrated by
the following examples:
Example 1. (i) Facts. A group health plan imposes a preexisting
condition exclusion period of 12 months. After receiving the general
notice of preexisting condition exclusion, Individual G presents a
certificate of creditable coverage indicating 240 days of creditable
coverage. Within seven days of receipt of the certificate, the plan
determines that G is subject to a preexisting condition exclusion of
125 days, the last day of which is March 5. Five days later, the
plan notifies G that, based on the certificate G submitted, G is
subject to a preexisting condition exclusion period of 125 days,
ending on March 5. The notice also explains the opportunity to
submit additional evidence of creditable coverage and the plan's
appeal procedures. The notice does not identify any of G's medical
conditions that could be subject to the exclusion.
(ii) Conclusion. In this Example 1, the plan satisfies the
requirements of this paragraph (e).
Example 2. (i) Facts. Same facts as in Example 1, except that
the plan determines that G has 430 days of creditable coverage based
on G's certificate indicating 430 days of creditable coverage under
G's prior plan.
(ii) Conclusion. In this Example 2, the plan is not required to
notify G that G will not be subject to a preexisting condition
exclusion.
(f) Reconsideration. Nothing in this section prevents a plan or
issuer from modifying an initial determination of creditable coverage
if it determines that the individual did not have the claimed
creditable coverage, provided that --
(1) A notice of the new determination (consistent with the
requirements of paragraph (e) of this section) is provided to the
individual; and
(2) Until the notice of the new determination is provided, the plan
or issuer, for purposes of approving access to medical services (such
as a pre-surgery authorization), acts in a manner consistent with the
initial determination.
0
3. Revise Sec. 146.113 to read as follows:
Sec. 146.113 Rules relating to creditable coverage.
(a) General rules--(1) Creditable coverage. For purposes of this
section, except as provided in paragraph (a)(2) of this section, the
term creditable coverage means coverage of an individual under any of
the following:
(i) A group health plan as defined in Sec. 146.145(a).
(ii) Health insurance coverage as defined in Sec. 144.103 of this
chapter (whether or not the entity offering the coverage is subject to
the requirements of this part and 45 CFR part 148 and without regard to
whether the coverage is offered in the group market, the individual
market, or otherwise).
(iii) Part A or B of Title XVIII of the Social Security Act
(Medicare).
(iv) Title XIX of the Social Security Act (Medicaid), other than
coverage consisting solely of benefits under section 1928 of the Social
Security Act (the program for distribution of pediatric vaccines).
(v) Title 10 U.S.C. Chapter 55 (medical and dental care for members
and certain former members of the uniformed services, and for their
dependents; for purposes of Title 10 U.S.C. Chapter 55, uniformed
services means the armed forces and the Commissioned Corps of the
National Oceanic and Atmospheric Administration and of the Public
Health Service).
(vi) A medical care program of the Indian Health Service or of a
tribal organization.
(vii) A State health benefits risk pool. For purposes of this
section, a State health benefits risk pool means--
(A) An organization qualifying under section 501(c)(26) of the
Internal Revenue Code;
(B) A qualified high risk pool described in section 2744(c)(2) of
the PHS Act; or
(C) Any other arrangement sponsored by a State, the membership
composition of which is specified by the State and which is established
and maintained primarily to provide health coverage for individuals who
are residents of such State and who, by reason of the existence or
history of a medical condition--
(1) Are unable to acquire medical care coverage for such condition
through insurance or from an HMO, or
(2) Are able to acquire such coverage only at a rate which is
substantially in excess of the rate for such coverage through the
membership organization.
(viii) A health plan offered under Title 5 U.S.C. Chapter 89 (the
Federal Employees Health Benefits Program).
(ix) A public health plan. For purposes of this section, a public
health plan means any plan established or maintained by a State, the
U.S. government, a foreign country, or any political subdivision of a
State, the U.S. government, or a foreign country that provides health
coverage to individuals who are enrolled in the plan.
(x) A health benefit plan under section 5(e) of the Peace Corps Act
(22 U.S.C. 2504(e)).
(xi) Title XXI of the Social Security Act (State Children's Health
Insurance Program).
(2) Excluded coverage. Creditable coverage does not include
coverage of solely excepted benefits (described in Sec. 146.145).
(3) Methods of counting creditable coverage. For purposes of
reducing any preexisting condition exclusion period, as provided under
Sec. 146.111(a)(2)(iii), the amount of an individual's creditable
coverage generally is determined by using the standard method described
in paragraph (b) of this section. A plan or issuer may use the
alternative method under paragraph (c) of this section with respect to
any or all of the categories of benefits described under paragraph
(c)(3) of this section.
(b) Standard method--(1) Specific benefits not considered. Under
the standard method, the amount of creditable coverage is determined
without regard to the specific benefits included in the coverage.
(2) Counting creditable coverage--(i) Based on days. For purposes
of reducing the preexisting condition exclusion period that applies to
an individual, the amount of creditable coverage is determined by
counting all the days on which the individual has one or more types of
creditable coverage. Accordingly, if on a particular day an individual
has creditable coverage from more than one source, all the creditable
coverage on that day is counted as one day. Any days in a waiting
period for coverage are not creditable coverage.
(ii) Days not counted before significant break in coverage. Days of
creditable coverage that occur before a significant break in coverage
are not required to be counted.
(iii) Significant break in coverage defined--A significant break in
coverage means a period of 63 consecutive days during each of which an
individual does not have any creditable coverage. (See also Sec.
146.143(c)(2)(iii) regarding the applicability to issuers of State
insurance laws that require a break of more than 63 days before an
individual
[[Page 78789]]
has a significant break in coverage for purposes of State insurance
law.)
(iv) Periods that toll a significant break. Days in a waiting
period and days in an affiliation period are not taken into account in
determining whether a significant break in coverage has occurred. In
addition, for an individual who elects COBRA continuation coverage
during the second election period provided under the Trade Act of 2002,
the days between the date the individual lost group health plan
coverage and the first day of the second COBRA election period are not
taken into account in determining whether a significant break in
coverage has occurred.
(v) Examples. The rules of this paragraph (b)(2) are illustrated by
the following examples:
Example 1. (i) Facts. Individual A has creditable coverage under
Employer P's plan for 18 months before coverage ceases. A is
provided a certificate of creditable coverage on A's last day of
coverage. Sixty-four days after the last date of coverage under P's
plan, A is hired by Employer Q and enrolls in Q's group health plan.
Q's plan has a 12-month preexisting condition exclusion.
(ii) Conclusion. In this Example 1, A has a break in coverage of
63 days. Because A's break in coverage is a significant break in
coverage, Q's plan may disregard A's prior coverage and A may be
subject to a 12-month preexisting condition exclusion.
Example 2. (i) Facts. Same facts as Example 1, except that A is
hired by Q and enrolls in Q's plan on the 63rd day after the last
date of coverage under P's plan.
(ii) Conclusion. In this Example 2, A has a break in coverage of
62 days. Because A's break in coverage is not a significant break in
coverage, Q's plan must count A's prior creditable coverage for
purposes of reducing the plan's preexisting condition exclusion
period that applies to A.
Example 3. (i) Facts. Same facts as Example 1, except that Q's
plan provides benefits through an insurance policy that, as required
by applicable State insurance laws, defines a significant break in
coverage as 90 days.
(ii) Conclusion. In this Example 3, under State law, the issuer
that provides group health insurance coverage to Q's plan must count
A's period of creditable coverage prior to the 63-day break.
(However, if Q's plan was a self-insured plan, the coverage would
not be subject to State law. Therefore, the health coverage would
not be governed by the longer break rules and A's previous health
coverage could be disregarded.)
Example 4. --[Reserved]
Example 5. (i) Facts. Individual C has creditable coverage under
Employer S's plan for 200 days before coverage ceases. C is provided
a certificate of creditable coverage on C's last day of coverage. C
then does not have any creditable coverage for 51 days before being
hired by Employer T. T's plan has a 3-month waiting period. C works
for T for 2 months and then terminates employment. Eleven days after
terminating employment with T, C begins working for Employer U. U's
plan has no waiting period, but has a 6-month preexisting condition
exclusion.
(ii) Conclusion. In this Example 5, C does not have a
significant break in coverage because, after disregarding the
waiting period under T's plan, C had only a 62-day break in coverage
(51 days plus 11 days). Accordingly, C has 200 days of creditable
coverage, and U's plan may not apply its 6-month preexisting
condition exclusion with respect to C.
Example 6. --[Reserved]
Example 7. (i) Facts. Individual E has creditable coverage under
Employer X's plan. E is provided a certificate of creditable
coverage on E's last day of coverage. On the 63rd day without
coverage, E submits a substantially complete application for a
health insurance policy in the individual market. E's application is
accepted and coverage is made effective 10 days later.
(ii) Conclusion. In this Example 7, because E applied for the
policy before the end of the 63rd day, the period between the date
of application and the first day of coverage is a waiting period and
no significant break in coverage occurred even though the actual
period without coverage was 73 days.
Example 8. (i) Facts. Same facts as Example 7, except that E's
application for a policy in the individual market is denied.
(ii) Conclusion. In this Example 8, even though E did not obtain
coverage following application, the period between the date of
application and the date the coverage was denied is a waiting
period. However, to avoid a significant break in coverage, no later
than the day after the application for the policy is denied E would
need to do one of the following: submit a substantially complete
application for a different individual market policy; obtain
coverage in the group market; or be in a waiting period for coverage
in the group market.
(vi) Other permissible counting methods--(A) Rule. Notwithstanding
any other provisions of this paragraph (b)(2), for purposes of reducing
a preexisting condition exclusion period (but not for purposes of
issuing a certificate under Sec. 146.115), a group health plan, and a
health insurance issuer offering group health insurance coverage, may
determine the amount of creditable coverage in any other manner that is
at least as favorable to the individual as the method set forth in this
paragraph (b)(2), subject to the requirements of other applicable law.
(B) Example. The rule of this paragraph (b)(2)(vi) is illustrated
by the following example:
Example. (i) Facts. Individual F has coverage under Group Health
Plan Y from January 3, 1997 through March 25, 1997. F then becomes
covered by Group Health Plan Z. F's enrollment date in Plan Z is May
1, 1997. Plan Z has a 12-month preexisting condition exclusion.
(ii) Conclusion. In this Example, Plan Z may determine, in
accordance with the rules prescribed in paragraphs (b)(2)(i), (ii),
and (iii) of this section, that F has 82 days of creditable coverage
(29 days in January, 28 days in February, and 25 days in March).
Thus, the preexisting condition exclusion will no longer apply to F
on February 8, 1998 (82 days before the 12-month anniversary of F's
enrollment (May 1)). For administrative convenience, however, Plan Z
may consider that the preexisting condition exclusion will no longer
apply to F on the first day of the month (February 1).
(c) Alternative method--(1) Specific benefits considered. Under the
alternative method, a group health plan, or a health insurance issuer
offering group health insurance coverage, determines the amount of
creditable coverage based on coverage within any category of benefits
described in paragraph (c)(3) of this section and not based on coverage
for any other benefits. The plan or issuer may use the alternative
method for any or all of the categories. The plan or issuer may apply a
different preexisting condition exclusion period with respect to each
category (and may apply a different preexisting condition exclusion
period for benefits that are not within any category). The creditable
coverage determined for a category of benefits applies only for
purposes of reducing the preexisting condition exclusion period with
respect to that category. An individual's creditable coverage for
benefits that are not within any category for which the alternative
method is being used is determined under the standard method of
paragraph (b) of this section.
(2) Uniform application. A plan or issuer using the alternative
method is required to apply it uniformly to all participants and
beneficiaries under the plan or health insurance coverage. The use of
the alternative method is required to be set forth in the plan.
(3) Categories of benefits. The alternative method for counting
creditable coverage may be used for coverage for the following
categories of benefits--
(i) Mental health;
(ii) Substance abuse treatment;
(iii) Prescription drugs;
(iv) Dental care; or
(v) Vision care.
(4) Plan notice. If the alternative method is used, the plan is
required to--
(i) State prominently that the plan is using the alternative method
of counting creditable coverage in disclosure statements concerning the
plan, and state this to each enrollee at the time of enrollment under
the plan; and
(ii) Include in these statements a description of the effect of
using the
[[Page 78790]]
alternative method, including an identification of the categories used.
(5) Issuer notice. With respect to health insurance coverage
offered by an issuer in the small or large group market, if the
insurance coverage uses the alternative method, the issuer states
prominently in any disclosure statement concerning the coverage, that
the issuer is using the alternative method, and includes in such
statements a description of the effect of using the alternative method.
This applies separately to each type of coverage offered by the health
insurance issuer.
(6) Disclosure of information on previous benefits. See Sec.
146.115(b) for special rules concerning disclosure of coverage to a
plan, or issuer, using the alternative method of counting creditable
coverage under this paragraph (c).
(7) Counting creditable coverage--(i) In general. Under the
alternative method, the group health plan or issuer counts creditable
coverage within a category if any level of benefits is provided within
the category. Coverage under a reimbursement account or arrangement,
such as a flexible spending arrangement (as defined in section
106(c)(2) of the Internal Revenue Code), does not constitute coverage
within any category.
(ii) Special rules. In counting an individual's creditable coverage
under the alternative method, the group health plan, or issuer, first
determines the amount of the individual's creditable coverage that may
be counted under paragraph (b) of this section, up to a total of 365
days of the most recent creditable coverage (546 days for a late
enrollee). The period over which this creditable coverage is determined
is referred to as the determination period. Then, for the category
specified under the alternative method, the plan or issuer counts
within the category all days of coverage that occurred during the
determination period (whether or not a significant break in coverage
for that category occurs), and reduces the individual's preexisting
condition exclusion period for that category by that number of days.
The plan or issuer may determine the amount of creditable coverage in
any other reasonable manner, uniformly applied, that is at least as
favorable to the individual.
(iii) Example. The rules of this paragraph (c)(7) are illustrated
by the following example:
Example. (i) Facts. Individual D enrolls in Employer V's plan on
January 1, 2001. Coverage under the plan includes prescription drug
benefits. On April 1, 2001, the plan ceases providing prescription
drug benefits. D's employment with Employer V ends on January 1,
2002, after D was covered under Employer V's group health plan for
365 days. D enrolls in Employer Y's plan on February 1, 2002 (D's
enrollment date). Employer Y's plan uses the alternative method of
counting creditable coverage and imposes a 12-month preexisting
condition exclusion on prescription drug benefits.
(ii) Conclusion. In this Example, Employer Y's plan may impose a
275-day preexisting condition exclusion with respect to D for
prescription drug benefits because D had 90 days of creditable
coverage relating to prescription drug benefits within D's
determination period.
0
4. Revise Sec. 146.115 to read as follows:
Sec. 146.115 Certification and disclosure of previous coverage.
(a) Certificate of creditable coverage--(1) Entities required to
provide certificate--(i) In General. A group health plan, and each
health insurance issuer offering group health insurance coverage under
a group health plan, is required to furnish certificates of creditable
coverage in accordance with this paragraph (a).
(ii) Duplicate certificates not required. An entity required to
provide a certificate under this paragraph (a) with respect to an
individual satisfies that requirement if another party provides the
certificate, but only to the extent that the certificate contains the
information required in paragraph (a)(3) of this section. For example,
in the case of a group health plan funded through an insurance policy,
the issuer satisfies the certification requirement with respect to an
individual if the plan actually provides a certificate that includes
all the information required under paragraph (a)(3) of this section
with respect to the individual.
(iii) Special rule for group health plans. To the extent coverage
under a plan consists of group health insurance coverage, the plan
satisfies the certification requirements under this paragraph (a) if
any issuer offering the coverage is required to provide the
certificates pursuant to an agreement between the plan and the issuer.
For example, if there is an agreement between an issuer and a plan
sponsor under which the issuer agrees to provide certificates for
individuals covered under the plan, and the issuer fails to provide a
certificate to an individual when the plan would have been required to
provide one under this paragraph (a), then the issuer, but not the
plan, violates the certification requirements of this paragraph (a).
(iv) Special rules for issuers--(A)(1) Responsibility of issuer for
coverage period. An issuer is not required to provide information
regarding coverage provided to an individual by another party.
(2) Example. The rule of this paragraph (a)(1)(iv)(A) is
illustrated by the following example:
Example. (i) Facts. A plan offers coverage with an HMO option
from one issuer and an indemnity option from a different issuer. The
HMO has not entered into an agreement with the plan to provide
certificates as permitted under paragraph (a)(1)(iii) of this
section.
(ii) Conclusion. In this Example, if an employee switches from
the indemnity option to the HMO option and later ceases to be
covered under the plan, any certificate provided by the HMO is not
required to provide information regarding the employee's coverage
under the indemnity option.
(B)(1) Cessation of issuer coverage prior to cessation of coverage
under a plan. If an individual's coverage under an issuer's policy or
contract ceases before the individual's coverage under the plan ceases,
the issuer is required to provide sufficient information to the plan
(or to another party designated by the plan) to enable the plan (or
other party), after cessation of the individual's coverage under the
plan, to provide a certificate that reflects the period of coverage
under the policy or contract. By providing that information to the
plan, the issuer satisfies its obligation to provide an automatic
certificate for that period of creditable coverage with respect to the
individual under paragraph (a)(2)(ii) of this section. The issuer,
however, must still provide a certificate upon request as required
under paragraph (a)(2)(iii) of this section. In addition, the issuer is
required to cooperate with the plan in responding to any request made
under paragraph (b)(2) of this section (relating to the alternative
method of counting creditable coverage). Moreover, if the individual's
coverage under the plan ceases at the time the individual's coverage
under the issuer's policy or contract ceases, the issuer must still
provide an automatic certificate under paragraph (a)(2)(ii) of this
section. If an individual's coverage under an issuer's policy or
contract ceases on the effective date for changing enrollment options
under the plan, the issuer may presume (absent information to the
contrary) that the individual's coverage under the plan continues.
Therefore, the issuer is required to provide information to the plan in
accordance with this paragraph (a)(1)(iv)(B)(1) (and is not required to
provide an automatic certificate under paragraph (a)(2)(ii) of this
section).
(2) Example. The rule of this paragraph (a)(1)(iv)(B) is
illustrated by the following example:
[[Page 78791]]
Example. (i) Facts. A group health plan provides coverage under
an HMO option and an indemnity option through different issuers, and
only allows employees to switch on each January 1. Neither the HMO
nor the indemnity issuer has entered into an agreement with the plan
to provide certificates as permitted under paragraph (a)(1)(iii) of
this section.
(ii) Conclusion. In this Example, if an employee switches from
the indemnity option to the HMO option on January 1, the indemnity
issuer must provide the plan (or a person designated by the plan)
with appropriate information with respect to the individual's
coverage with the indemnity issuer. However, if the individual's
coverage with the indemnity issuer ceases at a date other than
January 1, the issuer is instead required to provide the individual
with an automatic certificate.
(2) Individuals for whom certificate must be provided; timing of
issuance--(i) Individuals. A certificate must be provided, without
charge, for participants or dependents who are or were covered under a
group health plan upon the occurrence of any of the events described in
paragraph (a)(2)(ii) or (iii) of this section.
(ii) Issuance of automatic certificates. The certificates described
in this paragraph (a)(2)(ii) are referred to as automatic certificates.
(A) Qualified beneficiaries upon a qualifying event. In the case of
an individual who is a qualified beneficiary (as defined in section
607(3) of ERISA, section 4980(B)(g)(1) of the Internal Revenue Code, or
section 2208 of the PHS Act) entitled to elect COBRA continuation
coverage, an automatic certificate is required to be provided at the
time the individual would lose coverage under the plan in the absence
of COBRA continuation coverage or alternative coverage elected instead
of COBRA continuation coverage. A plan or issuer satisfies this
requirement if it provides the automatic certificate no later than the
time a notice is required to be furnished for a qualifying event under
section 606 of ERISA, section 4980(B)(f)(6) of the Internal Revenue
Code, and section 2206 of the PHS Act (relating to notices required
under COBRA).
(B) Other individuals when coverage ceases. In the case of an
individual who is not a qualified beneficiary entitled to elect COBRA
continuation coverage, an automatic certificate must be provided at the
time the individual ceases to be covered under the plan. A plan or
issuer satisfies the requirement to provide an automatic certificate at
the time the individual ceases to be covered if it provides the
automatic certificate within a reasonable time after coverage ceases
(or after the expiration of any grace period for nonpayment of
premiums).
(1) The cessation of temporary continuation coverage (TCC) under
Title 5 U.S.C. Chapter 89 (the Federal Employees Health Benefit
Program) is a cessation of coverage upon which an automatic certificate
must be provided.
(2) In the case of an individual who is entitled to elect to
continue coverage under a State program similar to COBRA and who
receives the automatic certificate not later than the time a notice is
required to be furnished under the State program, the certificate is
deemed to be provided within a reasonable time after coverage ceases
under the plan.
(3) If an individual's coverage ceases due to the operation of a
lifetime limit on all benefits, coverage is considered to cease for
purposes of this paragraph (a)(2)(ii)(B) on the earliest date that a
claim is denied due to the operation of the lifetime limit.
(C) Qualified beneficiaries when COBRA ceases. In the case of an
individual who is a qualified beneficiary and has elected COBRA
continuation coverage (or whose coverage has continued after the
individual became entitled to elect COBRA continuation coverage), an
automatic certificate is to be provided at the time the individual' s
coverage under the plan ceases. A plan, or issuer, satisfies this
requirement if it provides the automatic certificate within a
reasonable time after coverage ceases (or after the expiration of any
grace period for nonpayment of premiums). An automatic certificate is
required to be provided to such an individual regardless of whether the
individual has previously received an automatic certificate under
paragraph (a)(2)(ii)(A) of this section.
(iii) Any individual upon request. A certificate must be provided
in response to a request made by, or on behalf of, an individual at any
time while the individual is covered under a plan and up to 24 months
after coverage ceases. Thus, for example, a plan in which an individual
enrolls may, if authorized by the individual, request a certificate of
the individual's creditable coverage on behalf of the individual from a
plan in which the individual was formerly enrolled. After the request
is received, a plan or issuer is required to provide the certificate by
the earliest date that the plan or issuer, acting in a reasonable and
prompt fashion, can provide the certificate. A certificate is required
to be provided under this paragraph (a)(2)(iii) even if the individual
has previously received a certificate under this paragraph (a)(2)(iii)
or an automatic certificate under paragraph (a)(2)(ii) of this section.
(iv) Examples. The rules of this paragraph (a)(2) are illustrated
by the following examples:
Example 1. (i) Facts. Individual A terminates employment with
Employer Q. A is a qualified beneficiary entitled to elect COBRA
continuation coverage under Employer Q's group health plan. A notice
of the rights provided under COBRA is typically furnished to
qualified beneficiaries under the plan within 10 days after a
covered employee terminates employment.
(ii) Conclusion. In this Example 1, the automatic certificate
may be provided at the same time that A is provided the COBRA
notice.
Example 2. (i) Facts. Same facts as Example 1, except that the
automatic certificate for A is not completed by the time the COBRA
notice is furnished to A.
(ii) Conclusion. In this Example 2, the automatic certificate
may be provided after the COBRA notice but must be provided within
the period permitted by law for the delivery of notices under COBRA.
Example 3. (i) Facts. Employer R maintains an insured group
health plan. R has never had 20 employees and thus R's plan is not
subject to the COBRA continuation provisions. However, R is in a
State that has a State program similar to COBRA. B terminates
employment with R and loses coverage under R's plan.
(ii) Conclusion. In this Example 3, the automatic certificate
must be provided not later than the time a notice is required to be
furnished under the State program.
Example 4. (i) Facts. Individual C terminates employment with
Employer S and receives both a notice of C's rights under COBRA and
an automatic certificate. C elects COBRA continuation coverage under
Employer S's group health plan. After four months of COBRA
continuation coverage and the expiration of a 30-day grace period,
S's group health plan determines that C's COBRA continuation
coverage has ceased due to a failure to make a timely payment for
continuation coverage.
(ii) Conclusion. In this Example 4, the plan must provide an
updated automatic certificate to C within a reasonable time after
the end of the grace period.
Example 5. (i) Facts. Individual D is currently covered under
the group health plan of Employer T. D requests a certificate, as
permitted under paragraph (a)(2)(iii) of this section. Under the
procedure for T's plan, certificates are mailed (by first class
mail) 7 business days following receipt of the request. This date
reflects the earliest date that the plan, acting in a reasonable and
prompt fashion, can provide certificates.
(ii) Conclusion. In this Example 5, the plan's procedure
satisfies paragraph (a)(2)(iii) of this section.
(3) Form and content of certificate--(i) Written certificate--(A)
In General. Except as provided in paragraph (a)(3)(i)(B) of this
section, the certificate must be provided in writing (or any
[[Page 78792]]
other medium approved by the Secretary).
(B) Other permissible forms. No written certificate is required to
be provided under this paragraph (a) with respect to a particular event
described in paragraph (a)(2)(ii) or (iii) of this section, if--
(1) An individual who is entitled to receive the certificate
requests that the certificate be sent to another plan or issuer instead
of to the individual;
(2) The plan or issuer that would otherwise receive the certificate
agrees to accept the information in this paragraph (a)(3) through means
other than a written certificate (such as by telephone); and
(3) The receiving plan or issuer receives the information from the
sending plan or issuer through such means within the time required
under paragraph (a)(2) of this section.
(ii) Required information. The certificate must include the
following--
(A) The date the certificate is issued;
(B) The name of the group health plan that provided the coverage
described in the certificate;
(C) The name of the participant or dependent with respect to whom
the certificate applies, and any other information necessary for the
plan providing the coverage specified in the certificate to identify
the individual, such as the individual's identification number under
the plan and the name of the participant if the certificate is for (or
includes) a dependent;
(D) The name, address, and telephone number of the plan
administrator or issuer required to provide the certificate;
(E) The telephone number to call for further information regarding
the certificate (if different from paragraph (a)(3)(ii)(D) of this
section);
(F) Either--
(1) A statement that an individual has at least 18 months (for this
purpose, 546 days is deemed to be 18 months) of creditable coverage,
disregarding days of creditable coverage before a significant break in
coverage, or
(2) The date any waiting period (and affiliation period, if
applicable) began and the date creditable coverage began;
(G) The date creditable coverage ended, unless the certificate
indicates that creditable coverage is continuing as of the date of the
certificate; and
(H) An educational statement regarding HIPAA, which explains:
(1) The restrictions on the ability of a plan or issuer to impose a
preexisting condition exclusion (including an individual's ability to
reduce a preexisting condition exclusion by creditable coverage);
(2) Special enrollment rights;
(3) The prohibitions against discrimination based on any health
factor;
(4) The right to individual health coverage;
(5) The fact that State law may require issuers to provide
additional protections to individuals in that State; and
(6) Where to get more information.
(iii) Periods of coverage under the certificate. If an automatic
certificate is provided pursuant to paragraph (a)(2)(ii) of this
section, the period that must be included on the certificate is the
last period of continuous coverage ending on the date coverage ceased.
If an individual requests a certificate pursuant to paragraph
(a)(2)(iii) of this section, the certificate provided must include each
period of continuous coverage ending within the 24-month period ending
on the date of the request (or continuing on the date of the request).
A separate certificate may be provided for each such period of
continuous coverage.
(iv) Combining information for families. A certificate may provide
information with respect to both a participant and the participant's
dependents if the information is identical for each individual. If the
information is not identical, certificates may be provided on one form
if the form provides all the required information for each individual
and separately states the information that is not identical.
(v) Model certificate. The requirements of paragraph (a)(3)(ii) of
this section are satisfied if the plan or issuer provides a certificate
in accordance with a model certificate authorized by the Secretary.
(vi) Excepted benefits; categories of benefits. No certificate is
required to be furnished with respect to excepted benefits described in
Sec. 146.145(c). In addition, the information in the certificate
regarding coverage is not required to specify categories of benefits
described in Sec. 146.113(c) (relating to the alternative method of
counting creditable coverage). However, if excepted benefits are
provided concurrently with other creditable coverage (so that the
coverage does not consist solely of excepted benefits), information
concerning the benefits may be required to be disclosed under paragraph
(b) of this section.
(4) Procedures--(i) Method of delivery. The certificate is required
to be provided to each individual described in paragraph (a)(2) of this
section or an entity requesting the certificate on behalf of the
individual. The certificate may be provided by first-class mail. If the
certificate or certificates are provided to the participant and the
participant's spouse at the participant's last known address, then the
requirements of this paragraph (a)(4) are satisfied with respect to all
individuals residing at that address. If a dependent's last known
address is different than the participant's last known address, a
separate certificate is required to be provided to the dependent at the
dependent's last known address. If separate certificates are being
provided by mail to individuals who reside at the same address,
separate mailings of each certificate are not required.
(ii) Procedure for requesting certificates. A plan or issuer must
establish a written procedure for individuals to request and receive
certificates pursuant to paragraph (a)(2)(iii) of this section. The
written procedure must include all contact information necessary to
request a certificate (such as name and phone number or address).
(iii) Designated recipients. If an automatic certificate is
required to be provided under paragraph (a)(2)(ii) of this section, and
the individual entitled to receive the certificate designates another
individual or entity to receive the certificate, the plan or issuer
responsible for providing the certificate is permitted to provide the
certificate to the designated individual or entity. If a certificate is
required to be provided upon request under paragraph (a)(2)(iii) of
this section and the individual entitled to receive the certificate
designates another individual or entity to receive the certificate, the
plan or issuer responsible for providing the certificate is required to
provide the certificate to the designated individual or entity.
(5) Special rules concerning dependent coverage--(i)(A) Reasonable
efforts. A plan or issuer is required to use reasonable efforts to
determine any information needed for a certificate relating to
dependent coverage. In any case in which an automatic certificate is
required to be furnished with respect to a dependent under paragraph
(a)(2)(ii) of this section, no individual certificate is required to be
furnished until the plan or issuer knows (or making reasonable efforts
should know) of the dependent's cessation of coverage under the plan.
(B) Example. The rules of this paragraph (a)(5)(i) are illustrated
by the following example:
Example. (i) Facts. A group health plan covers employees and
their dependents. The plan annually requests all employees to
provide updated information regarding dependents, including the
specific date on which an employee has a new dependent or
[[Page 78793]]
on which a person ceases to be a dependent of the employee.
(ii) Conclusion. In this Example, the plan has satisfied the
standard in this paragraph (a)(5)(i) of this section that it make
reasonable efforts to determine the cessation of dependents'
coverage and the related dependent coverage information.
(ii) Special rules for demonstrating coverage. If a certificate
furnished by a plan or issuer does not provide the name of any
dependent covered by the certificate, the procedures described in
paragraph (c)(5) of this section may be used to demonstrate dependent
status. In addition, these procedures may be used to demonstrate that a
child was covered under any creditable coverage within 30 days after
birth, adoption, or placement for adoption. See also Sec. 146.111(b),
under which such a child cannot be subject to a preexisting condition
exclusion.
(6) Special certification rules--(i) Issuers. Issuers of group and
individual health insurance are required to provide certificates of any
creditable coverage they provide in the group or individual health
insurance market, even if the coverage is provided in connection with
an entity or program that is not itself required to provide a
certificate because it is not subject to the group market provisions of
this part, part 7 of subtitle B of title I of ERISA, or chapter 100 of
subtitle K of the Internal Revenue Code. This would include coverage
provided in connection with any of the following:
(A) Creditable coverage described in sections 2701(c)(1)(G), (I)
and (J) of the PHS Act (coverage under a State health benefits risk
pool, a public health plan, and a health benefit plan under section
5(e) of the Peace Corps Act).
(B) Coverage subject to section 2721(b)(1)(B) of the PHS Act
(requiring certificates by issuers offering health insurance coverage
in connection with any group health plan, including a church plan or a
governmental plan (including the Federal Employees Health Benefits
Program).
(C) Coverage subject to section 2743 of the PHS Act applicable to
health insurance issuers in the individual market. (However, this
section does not require a certificate to be provided with respect to
short-term limited duration insurance, which is excluded from the
definition of ``individual health insurance coverage'' in 45 CFR
144.103 that is not provided in connection with a group health plan, as
described in paragraph (a)(6)(i)(B) of this section.)
(ii) Other entities. For special rules requiring that certain other
entities, not subject to this part, provide certificates consistent
with the rules of this section, see section 2791(a)(3) of the PHS Act
applicable to entities described in sections 2701(c)(1)(C), (D), (E),
and (F) of the PHS Act (relating to Medicare, Medicaid, TRICARE, and
Indian Health Service), section 2721(b)(1)(A) of the PHS Act applicable
to non-Federal governmental plans generally, section 2721(b)(2)(C)(ii)
of the PHS Act applicable to non-Federal governmental plans that elect
to be excluded from the requirements of subparts 1 through 3 of part A
of title XXVII of the PHS Act, and section 9805(a) of the Internal
Revenue Code applicable to group health plans, which includes church
plans (as defined in section 414(e) of the Internal Revenue Code).
(b) Disclosure of coverage to a plan or issuer using the
alternative method of counting creditable coverage--(1) In general.
After an individual provides a certificate of creditable coverage to a
plan or issuer using the alternative method under Sec. 146.113(c),
that plan or issuer (requesting entity) must request that the entity
that issued the certificate (prior entity) disclose the information set
forth in paragraph (b)(2) of this section. The prior entity is required
to disclose this information promptly.
(2) Information to be disclosed. The prior entity is required to
identify to the requesting entity the categories of benefits with
respect to which the requesting entity is using the alternative method
of counting creditable coverage, and the requesting entity may identify
specific information that the requesting entity reasonably needs in
order to determine the individual's creditable coverage with respect to
any such category.
(3) Charge for providing information. The prior entity may charge
the requesting entity for the reasonable cost of disclosing such
information.
(c) Ability of an individual to demonstrate creditable coverage and
waiting period information--(1) Purpose. The rules in this paragraph
(c) implement section 2701(c)(4) of the PHS Act, which permits
individuals to demonstrate the duration of creditable coverage through
means other than certificates, and section 2701(e)(3) of the PHS Act,
which requires the Secretary to establish rules designed to prevent an
individual's subsequent coverage under a group health plan or health
insurance coverage from being adversely affected by an entity's failure
to provide a certificate with respect to that individual.
(2) In general. If the accuracy of a certificate is contested or a
certificate is unavailable when needed by an individual, the individual
has the right to demonstrate creditable coverage (and waiting or
affiliation periods) through the presentation of documents or other
means. For example, the individual may make such a demonstration when--
(i) An entity has failed to provide a certificate within the
required time;
(ii) The individual has creditable coverage provided by an entity
that is not required to provide a certificate of the coverage pursuant
to paragraph (a) of this section;
(iii) The individual has an urgent medical condition that
necessitates a determination before the individual can deliver a
certificate to the plan; or
(iv) The individual lost a certificate that the individual had
previously received and is unable to obtain another certificate.
(3) Evidence of creditable coverage--(i) Consideration of
evidence--(A) A plan or issuer is required to take into account all
information that it obtains or that is presented on behalf of an
individual to make a determination, based on the relevant facts and
circumstances, whether an individual has creditable coverage. A plan or
issuer shall treat the individual as having furnished a certificate
under paragraph (a) of this section if--
(1) The individual attests to the period of creditable coverage;
(2) The individual also presents relevant corroborating evidence of
some creditable coverage during the period; and
(3) The individual cooperates with the plan's or issuer's efforts
to verify the individual's coverage.
(B) For purposes of this paragraph (c)(3)(i), cooperation includes
providing (upon the plan's or issuer's request) a written authorization
for the plan or issuer to request a certificate on behalf of the
individual, and cooperating in efforts to determine the validity of the
corroborating evidence and the dates of creditable coverage. While a
plan or issuer may refuse to credit coverage where the individual fails
to cooperate with the plan's or issuer's efforts to verify coverage,
the plan or issuer may not consider an individual's inability to obtain
a certificate to be evidence of the absence of creditable coverage.
(ii) Documents. Documents that corroborate creditable coverage (and
waiting or affiliation periods) include explanations of benefits (EOBs)
or other correspondence from a plan or issuer indicating coverage, pay
stubs showing a payroll deduction for health coverage, a health
insurance identification card, a certificate of coverage under a group
health policy, records from medical care providers indicating health
coverage, third party statements verifying periods of coverage, and any
other relevant
[[Page 78794]]
documents that evidence periods of health coverage.
(iii) Other evidence. Creditable coverage (and waiting or
affiliation periods) may also be corroborated through means other than
documentation, such as by a telephone call from the plan or provider to
a third party verifying creditable coverage.
(iv) Example. The rules of this paragraph (c)(3) are illustrated by
the following example:
Example. (i) Facts. Individual F terminates employment with
Employer W and, a month later, is hired by Employer X. X's group
health plan imposes a preexisting condition exclusion of 12 months
on new enrollees under the plan and uses the standard method of
determining creditable coverage. F fails to receive a certificate of
prior coverage from the self-insured group health plan maintained by
F's prior employer, W, and requests a certificate. However, F (and
X's plan, on F's behalf and with F's cooperation) is unable to
obtain a certificate from W's plan. F attests that, to the best of
F's knowledge, F had at least 12 months of continuous coverage under
W's plan, and that the coverage ended no earlier than F's
termination of employment from W. In addition, F presents evidence
of coverage, such as an explanation of benefits for a claim that was
made during the relevant period.
(ii) Conclusion. In this Example, based solely on these facts, F
has demonstrated creditable coverage for the 12 months of coverage
under W's plan in the same manner as if F had presented a written
certificate of creditable coverage.
(4) Demonstrating categories of creditable coverage. Procedures
similar to those described in this paragraph (c) apply in order to
determine the duration of an individual's creditable coverage with
respect to any category under paragraph (b) of this section (relating
to determining creditable coverage under the alternative method).
(5) Demonstrating dependent status. If, in the course of providing
evidence (including a certificate) of creditable coverage, an
individual is required to demonstrate dependent status, the group
health plan or issuer is required to treat the individual as having
furnished a certificate showing the dependent status if the individual
attests to such dependency and the period of such status and the
individual cooperates with the plan's or issuer's efforts to verify the
dependent status.
0
5. Revise Sec. 146.117 to read as follows:
Sec. 146.117 Special enrollment periods.
(a) Special enrollment for certain individuals who lose coverage--
(1) In General. A group health plan, and a health insurance issuer
offering health insurance coverage in connection with a group health
plan, is required to permit current employees and dependents (as
defined in Sec. 144.103 of this chapter) who are described in
paragraph (a)(2) of this section to enroll for coverage under the terms
of the plan if the conditions in paragraph (a)(3) of this section are
satisfied. The special enrollment rights under this paragraph (a) apply
without regard to the dates on which an individual would otherwise be
able to enroll under the plan.
(2) Individuals eligible for special enrollment--(i) When employee
loses coverage. A current employee and any dependents (including the
employee's spouse) each are eligible for special enrollment in any
benefit package under the plan (subject to plan eligibility rules
conditioning dependent enrollment on enrollment of the employee) if--
(A) The employee and the dependents are otherwise eligible to
enroll in the benefit package;
(B) When coverage under the plan was previously offered, the
employee had coverage under any group health plan or health insurance
coverage; and
(C) The employee satisfies the conditions of paragraph (a)(3)(i),
(ii), or (iii) of this section and, if applicable, paragraph (a)(3)(iv)
of this section.
(ii) When dependent loses coverage--(A) A dependent of a current
employee (including the employee's spouse) and the employee each are
eligible for special enrollment in any benefit package under the plan
(subject to plan eligibility rules conditioning dependent enrollment on
enrollment of the employee) if--
(1) The dependent and the employee are otherwise eligible to enroll
in the benefit package;
(2) When coverage under the plan was previously offered, the
dependent had coverage under any group health plan or health insurance
coverage; and
(3) The dependent satisfies the conditions of paragraph (a)(3)(i),
(ii), or (iii) of this section and, if applicable, paragraph (a)(3)(iv)
of this section.
(B) However, the plan or issuer is not required to enroll any other
dependent unless that dependent satisfies the criteria of this
paragraph (a)(2)(ii), or the employee satisfies the criteria of
paragraph (a)(2)(i) of this section.
(iii) Examples. The rules of this paragraph (a)(2) are illustrated
by the following examples:
Example 1. (i) Facts. Individual A works for Employer X. A, A's
spouse, and A's dependent children are eligible but not enrolled for
coverage under X's group health plan. A's spouse works for Employer
Y and at the time coverage was offered under X's plan, A was
enrolled in coverage under Y's plan. Then, A loses eligibility for
coverage under Y's plan.
(ii) Conclusion. In this Example 1, because A satisfies the
conditions for special enrollment under paragraph (a)(2)(i) of this
section, A, A's spouse, and A's dependent children are eligible for
special enrollment under X's plan.
Example 2. (i) Facts. Individual A and A's spouse are eligible
but not enrolled for coverage under Group Health Plan P maintained
by A's employer. When A was first presented with an opportunity to
enroll A and A's spouse, they did not have other coverage. Later, A
and A's spouse enroll in Group Health Plan Q maintained by the
employer of A's spouse. During a subsequent open enrollment period
in P, A and A's spouse did not enroll because of their coverage
under Q. They then lose eligibility for coverage under Q.
(ii) Conclusion. In this Example 2, because A and A's spouse
were covered under Q when they did not enroll in P during open
enrollment, they satisfy the conditions for special enrollment under
paragraphs (a)(2)(i) and (ii) of this section. Consequently, A and
A's spouse are eligible for special enrollment under P.
Example 3. (i) Facts. Individual B works for Employer X. B and
B's spouse are eligible but not enrolled for coverage under X's
group health plan. B's spouse works for Employer Y and at the time
coverage was offered under X's plan, B's spouse was enrolled in
self-only coverage under Y's group health plan. Then, B's spouse
loses eligibility for coverage under Y's plan.
(ii) Conclusion. In this Example 3, because B's spouse satisfies
the conditions for special enrollment under paragraph (a)(2)(ii) of
this section, both B and B's spouse are eligible for special
enrollment under X's plan.
Example 4. (i) Facts. Individual A works for Employer X. X
maintains a group health plan with two benefit packages--an HMO
option and an indemnity option. Self-only and family coverage are
available under both options. A enrolls for self-only coverage in
the HMO option. A's spouse works for Employer Y and was enrolled for
self-only coverage under Y's plan at the time coverage was offered
under X's plan. Then, A's spouse loses coverage under Y's plan. A
requests special enrollment for A and A's spouse under the plan's
indemnity option.
(ii) Conclusion. In this Example 4, because A's spouse satisfies
the conditions for special enrollment under paragraph (a)(2)(ii) of
this section, both A and A's spouse can enroll in either benefit
package under X's plan. Therefore, if A requests enrollment in
accordance with the requirements of this section, the plan must
allow A and A's spouse to enroll in the indemnity option.
(3) Conditions for special enrollment--(i) Loss of eligibility for
coverage. In the case of an employee or dependent who has coverage that
is not COBRA continuation coverage, the conditions of this paragraph
(a)(3)(i) are satisfied at the time the coverage is terminated as a
result of loss of eligibility (regardless of whether the individual is
eligible for or elects COBRA continuation coverage). Loss of
eligibility under this paragraph (a)(3)(i) does not include a loss due
to the failure
[[Page 78795]]
of the employee or dependent to pay premiums on a timely basis or
termination of coverage for cause (such as making a fraudulent claim or
an intentional misrepresentation of a material fact in connection with
the plan). Loss of eligibility for coverage under this paragraph
(a)(3)(i) includes (but is not limited to)--
(A) Loss of eligibility for coverage as a result of legal
separation, divorce, cessation of dependent status (such as attaining
the maximum age to be eligible as a dependent child under the plan),
death of an employee, termination of employment, reduction in the
number of hours of employment, and any loss of eligibility for coverage
after a period that is measured by reference to any of the foregoing;
(B) In the case of coverage offered through an HMO, or other
arrangement, in the individual market that does not provide benefits to
individuals who no longer reside, live, or work in a service area, loss
of coverage because an individual no longer resides, lives, or works in
the service area (whether or not within the choice of the individual);
(C) In the case of coverage offered through an HMO, or other
arrangement, in the group market that does not provide benefits to
individuals who no longer reside, live, or work in a service area, loss
of coverage because an individual no longer resides, lives, or works in
the service area (whether or not within the choice of the individual),
and no other benefit package is available to the individual;
(D) A situation in which an individual incurs a claim that would
meet or exceed a lifetime limit on all benefits; and
(E) A situation in which a plan no longer offers any benefits to
the class of similarly situated individuals (as described in Sec.
146.121(d)) that includes the individual.
(ii) Termination of employer contributions. In the case of an
employee or dependent who has coverage that is not COBRA continuation
coverage, the conditions of this paragraph (a)(3)(ii) are satisfied at
the time employer contributions towards the employee's or dependent's
coverage terminate. Employer contributions include contributions by any
current or former employer that was contributing to coverage for the
employee or dependent.
(iii) Exhaustion of COBRA continuation coverage. In the case of an
employee or dependent who has coverage that is COBRA continuation
coverage, the conditions of this paragraph (a)(3)(iii) are satisfied at
the time the COBRA continuation coverage is exhausted. For purposes of
this paragraph (a)(3)(iii), an individual who satisfies the conditions
for special enrollment of paragraph (a)(3)(i) of this section, does not
enroll, and instead elects and exhausts COBRA continuation coverage
satisfies the conditions of this paragraph (a)(3)(iii). (Exhaustion of
COBRA continuation coverage is defined in Sec. 144.103 of this
chapter.)
(iv) Written statement. A plan may require an employee declining
coverage (for the employee or any dependent of the employee) to state
in writing whether the coverage is being declined due to other health
coverage only if, at or before the time the employee declines coverage,
the employee is provided with notice of the requirement to provide the
statement (and the consequences of the employee's failure to provide
the statement). If a plan requires such a statement, and an employee
does not provide it, the plan is not required to provide special
enrollment to the employee or any dependent of the employee under this
paragraph (a)(3). A plan must treat an employee as having satisfied the
plan requirement permitted under this paragraph (a)(3)(iv) if the
employee provides a written statement that coverage was being declined
because the employee or dependent had other coverage; a plan cannot
require anything more for the employee to satisfy the plan's
requirement to provide a written statement. (For example, the plan
cannot require that the statement be notarized.)
(v) The rules of this paragraph (a)(3) are illustrated by the
following examples:
Example 1. (i) Facts. Individual D enrolls in a group health
plan maintained by Employer Y. At the time D enrolls, Y pays 70
percent of the cost of employee coverage and D pays the rest. Y
announces that beginning January 1, Y will no longer make employer
contributions towards the coverage. Employees may maintain coverage,
however, if they pay the total cost of the coverage.
(ii) Conclusion. In this Example 1, employer contributions
towards D's coverage ceased on January 1 and the conditions of
paragraph (a)(3)(ii) of this section are satisfied on this date
(regardless of whether D elects to pay the total cost and continue
coverage under Y's plan).
Example 2. (i) Facts. A group health plan provides coverage
through two options--Option 1 and Option 2. Employees can enroll in
either option only within 30 days of hire or on January 1 of each
year. Employee A is eligible for both options and enrolls in Option
1. Effective July 1 the plan terminates coverage under Option 1 and
the plan does not create an immediate open enrollment opportunity
into Option 2.
(ii) Conclusion. In this Example 2, A has experienced a loss of
eligibility for coverage that satisfies paragraph (a)(3)(i) of this
section, and has satisfied the other conditions for special
enrollment under paragraph (a)(2)(i) of this section. Therefore, if
A satisfies the other conditions of this paragraph (a), the plan
must permit A to enroll in Option 2 as a special enrollee. (A may
also be eligible to enroll in another group health plan, such as a
plan maintained by the employer of A's spouse, as a special
enrollee.) The outcome would be the same if Option 1 was terminated
by an issuer and the plan made no other coverage available to A.
Example 3. (i) Facts. Individual C is covered under a group
health plan maintained by Employer X. While covered under X's plan,
C was eligible for but did not enroll in a plan maintained by
Employer Z, the employer of C's spouse. C terminates employment with
X and loses eligibility for coverage under X's plan. C has a special
enrollment right to enroll in Z's plan, but C instead elects COBRA
continuation coverage under X's plan. C exhausts COBRA continuation
coverage under X's plan and requests special enrollment in Z's plan.
(ii) Conclusion. In this Example 3, C has satisfied the
conditions for special enrollment under paragraph (a)(3)(iii) of
this section, and has satisfied the other conditions for special
enrollment under paragraph (a)(2)(i) of this section. The special
enrollment right that C had into Z's plan immediately after the loss
of eligibility for coverage under X's plan was an offer of coverage
under Z's plan. When C later exhausts COBRA coverage under X's plan,
C has a second special enrollment right in Z's plan.
(4) Applying for special enrollment and effective date of
coverage--(i) A plan or issuer must allow an employee a period of at
least 30 days after an event described in paragraph (a)(3) of this
section (other than an event described in paragraph (a)(3)(i)(D)) to
request enrollment (for the employee or the employee's dependent). In
the case of an event described in paragraph (a)(3)(i)(D) of this
section (relating to loss of eligibility for coverage due to the
operation of a lifetime limit on all benefits), a plan or issuer must
allow an employee a period of at least 30 days after a claim is denied
due to the operation of a lifetime limit on all benefits.
(ii) Coverage must begin no later than the first day of the first
calendar month beginning after the date the plan or issuer receives the
request for special enrollment.
(b) Special enrollment with respect to certain dependent
beneficiaries--(1) General. A group health plan, and a health insurance
issuer offering health insurance coverage in connection with a group
health plan, that makes coverage available with respect to dependents
is required to permit individuals described in paragraph (b)(2) of this
section to be enrolled for coverage in a benefit
[[Page 78796]]
package under the terms of the plan. Paragraph (b)(3) of this section
describes the required special enrollment period and the date by which
coverage must begin. The special enrollment rights under this paragraph
(b) apply without regard to the dates on which an individual would
otherwise be able to enroll under the plan.
(2) Individuals eligible for special enrollment. An individual is
described in this paragraph (b)(2) if the individual is otherwise
eligible for coverage in a benefit package under the plan and if the
individual is described in paragraph (b)(2)(i), (ii), (iii), (iv), (v),
or (vi) of this section.
(i) Current employee only. A current employee is described in this
paragraph (b)(2)(i) if a person becomes a dependent of the individual
through marriage, birth, adoption, or placement for adoption.
(ii) Spouse of a participant only. An individual is described in
this paragraph (b)(2)(ii) if either--
(A) The individual becomes the spouse of a participant; or
(B) The individual is a spouse of a participant and a child becomes
a dependent of the participant through birth, adoption, or placement
for adoption.
(iii) Current employee and spouse. A current employee and an
individual who is or becomes a spouse of such an employee, are
described in this paragraph (b)(2)(iii) if either--
(A) The employee and the spouse become married; or
(B) The employee and spouse are married and a child becomes a
dependent of the employee through birth, adoption, or placement for
adoption.
(iv) Dependent of a participant only. An individual is described in
this paragraph (b)(2)(iv) if the individual is a dependent (as defined
in Sec. 144.103 of this chapter) of a participant and the individual
has become a dependent of the participant through marriage, birth,
adoption, or placement for adoption.
(v) Current employee and a new dependent. A current employee and an
individual who is a dependent of the employee, are described in this
paragraph (b)(2)(v) if the individual becomes a dependent of the
employee through marriage, birth, adoption, or placement for adoption.
(vi) Current employee, spouse, and a new dependent. A current
employee, the employee's spouse, and the employee's dependent are
described in this paragraph (b)(2)(vi) if the dependent becomes a
dependent of the employee through marriage, birth, adoption, or
placement for adoption.
(3) Applying for special enrollment and effective date of
coverage--(i) Request. A plan or issuer must allow an individual a
period of at least 30 days after the date of the marriage, birth,
adoption, or placement for adoption (or, if dependent coverage is not
generally made available at the time of the marriage, birth, adoption,
or placement for adoption, a period of at least 30 days after the date
the plan makes dependent coverage generally available) to request
enrollment (for the individual or the individual's dependent).
(ii) Reasonable procedures for special enrollment. [Reserved]
(iii) Date coverage must begin--(A) Marriage. In the case of
marriage, coverage must begin no later than the first day of the first
calendar month beginning after the date the plan or issuer receives the
request for special enrollment.
(B) Birth, adoption, or placement for adoption. Coverage must begin
in the case of a dependent's birth on the date of birth and in the case
of a dependent's adoption or placement for adoption no later than the
date of such adoption or placement for adoption (or, if dependent
coverage is not made generally available at the time of the birth,
adoption, or placement for adoption, the date the plan makes dependent
coverage available).
(4) Examples. The rules of this paragraph (b) are illustrated by
the following examples:
Example 1. (i) Facts. An employer maintains a group health plan
that offers all employees employee-only coverage, employee-plus-
spouse coverage, or family coverage. Under the terms of the plan,
any employee may elect to enroll when first hired (with coverage
beginning on the date of hire) or during an annual open enrollment
period held each December (with coverage beginning the following
January 1). Employee A is hired on September 3. A is married to B,
and they have no children. On March 15 in the following year a child
C is born to A and B. Before that date, A and B have not been
enrolled in the plan.
(ii) Conclusion. In this Example 1, the conditions for special
enrollment of an employee with a spouse and new dependent under
paragraph (b)(2)(vi) of this section are satisfied. If A satisfies
the conditions of paragraph (b)(3) of this section for requesting
enrollment timely, the plan will satisfy this paragraph (b) if it
allows A to enroll either with employee-only coverage, with
employee-plus-spouse coverage (for A and B), or with family coverage
(for A, B, and C). The plan must allow whatever coverage is chosen
to begin on March 15, the date of C's birth.
Example 2. (i) Facts. Individual D works for Employer X. X
maintains a group health plan with two benefit packages--an HMO
option and an indemnity option. Self-only and family coverage are
available under both options. D enrolls for self-only coverage in
the HMO option. Then, a child, E, is placed for adoption with D.
Within 30 days of the placement of E for adoption, D requests
enrollment for D and E under the plan's indemnity option.
(ii) Conclusion. In this Example 2, D and E satisfy the
conditions for special enrollment under paragraphs (b)(2)(v) and
(b)(3) of this section. Therefore, the plan must allow D and E to
enroll in the indemnity coverage, effective as of the date of the
placement for adoption.
(c) Notice of special enrollment. At or before the time an employee
is initially offered the opportunity to enroll in a group health plan,
the plan must furnish the employee with a notice of special enrollment
that complies with the requirements of this paragraph (c).
(1) Description of special enrollment rights. The notice of special
enrollment must include a description of special enrollment rights. The
following model language may be used to satisfy this requirement:
If you are declining enrollment for yourself or your dependents
(including your spouse) because of other health insurance or group
health plan coverage, you may be able to enroll yourself and your
dependents in this plan if you or your dependents lose eligibility
for that other coverage (or if the employer stops contributing
towards your or your dependents' other coverage). However, you must
request enrollment within [insert ``30 days'' or any longer period
that applies under the plan] after your or your dependents' other
coverage ends (or after the employer stops contributing toward the
other coverage).
In addition, if you have a new dependent as a result of
marriage, birth, adoption, or placement for adoption, you may be
able to enroll yourself and your dependents. However, you must
request enrollment within [insert ``30 days'' or any longer period
that applies under the plan] after the marriage, birth, adoption, or
placement for adoption.
To request special enrollment or obtain more information,
contact [insert the name, title, telephone number, and any
additional contact information of the appropriate plan
representative].
(2) Additional information that may be required. The notice of
special enrollment must also include, if applicable, the notice
described in paragraph (a)(3)(iv) of this section (the notice required
to be furnished to an individual declining coverage if the plan
requires the reason for declining coverage to be in writing).
(d) Treatment of special enrollees--(1) If an individual requests
enrollment while the individual is entitled to special enrollment under
either paragraph (a) or (b) of this section, the individual is a
special enrollee, even if the request for enrollment coincides with a
late enrollment opportunity under the plan. Therefore, the
[[Page 78797]]
individual cannot be treated as a late enrollee.
(2) Special enrollees must be offered all the benefit packages
available to similarly situated individuals who enroll when first
eligible. For this purpose, any difference in benefits or cost-sharing
requirements for different individuals constitutes a different benefit
package. In addition, a special enrollee cannot be required to pay more
for coverage than a similarly situated individual who enrolls in the
same coverage when first eligible. The length of any preexisting
condition exclusion that may be applied to a special enrollee cannot
exceed the length of any preexisting condition exclusion that is
applied to similarly situated individuals who enroll when first
eligible. For rules prohibiting the application of a preexisting
condition exclusion to certain newborns, adopted children, and children
placed for adoption, see Sec. 146.111(b).
(3) The rules of this section are illustrated by the following
example:
Example. (i) Facts. Employer Y maintains a group health plan
that has an enrollment period for late enrollees every November 1
through November 30 with coverage effective the following January 1.
On October 18, Individual B loses coverage under another group
health plan and satisfies the requirements of paragraphs (a)(2),
(3), and (4) of this section. B submits a completed application for
coverage on November 2.
(ii) Conclusion. In this Example, B is a special enrollee.
Therefore, even though B's request for enrollment coincides with an
open enrollment period, B's coverage is required to be made
effective no later than December 1 (rather than the plan's January 1
effective date for late enrollees).
0
6. Revise Sec. 146.119 to read as follows:
Sec. 146.119 HMO affiliation period as an alternative to a
preexisting condition exclusion.
(a) In general. A group health plan offering health insurance
coverage through an HMO, or an HMO that offers health insurance
coverage in connection with a group health plan, may impose an
affiliation period only if each of the following requirements is
satisfied--
(1) No preexisting condition exclusion is imposed with respect to
any coverage offered by the HMO in connection with the particular group
health plan.
(2) No premium is charged to a participant or beneficiary for the
affiliation period.
(3) The affiliation period for the HMO coverage is imposed
consistent with the requirements of Sec. 146.121 (prohibiting
discrimination based on a health factor).
(4) The affiliation period does not exceed 2 months (or 3 months in
the case of a late enrollee).
(5) The affiliation period begins on the enrollment date, or in the
case of a late enrollee, the affiliation period begins on the day that
would be the first day of coverage but for the affiliation period.
(6) The affiliation period for enrollment in the HMO under a plan
runs concurrently with any waiting period.
(b) Examples. The rules of paragraph (a) of this section are
illustrated by the following examples:
Example 1. (i) Facts. An employer sponsors a group health plan.
Benefits under the plan are provided through an HMO, which imposes a
two-month affiliation period. In order to be eligible under the
plan, employees must have worked for the employer for six months.
Individual A begins working for the employer on February 1.
(ii) Conclusion. In this Example 1, Individual A's enrollment
date is February 1 (see Sec. 146.111(a)(2)), and both the waiting
period and the affiliation period begin on this date and run
concurrently. Therefore, the affiliation period ends on March 31,
the waiting period ends on July 31, and A is eligible to have
coverage begin on August 1.
Example 2. (i) Facts. A group health plan has two benefit
package options, a fee-for-service option and an HMO option. The HMO
imposes a 1-month affiliation period. Individual B is enrolled in
the fee-for-service option for more than one month and then decides
to switch to the HMO option at open season.
(ii) Conclusion. In this Example 2, the HMO may not impose the
affiliation period with respect to B because any affiliation period
would have to begin on B's enrollment date in the plan rather than
the date that B enrolled in the HMO option. Therefore, the
affiliation period would have expired before B switched to the HMO
option.
Example 3. (i) Facts. An employer sponsors a group health plan
that provides benefits through an HMO. The plan imposes a two-month
affiliation period with respect to salaried employees, but it does
not impose an affiliation period with respect to hourly employees.
(ii) Conclusion. In this Example 3, the plan may impose the
affiliation period with respect to salaried employees without
imposing any affiliation period with respect to hourly employees
(unless, under the circumstances, treating salaried and hourly
employees differently does not comply with the requirements of Sec.
146.121).
(c) Alternatives to affiliation period. An HMO may use alternative
methods in lieu of an affiliation period to address adverse selection,
as approved by the State insurance commissioner or other official
designated to regulate HMOs. However, an arrangement that is in the
nature of a preexisting condition exclusion cannot be an alternative to
an affiliation period. Nothing in this part requires a State to receive
proposals for or approve alternatives to affiliation periods.
0
7. Add and reserve Sec. 146.120 to read as follows:
Sec. 146.120 Interaction with the Family and Medical Leave Act
[Reserved]
0
8. Revise Sec. 146.125 to read as follows:
Sec. 146.125 Applicability dates.
Sections 146.111 through 146.119, Sec. 146.143, and Sec. 146.145
are applicable for plan years beginning on or after July 1, 2005. Until
the applicability date for this regulation, plans and issuers are
required to continue to comply with the corresponding sections of 45
CFR parts 144 and 146, contained in the 45 CFR, parts 1 to 199, edition
revised as of October 1, 2004.
0
9. Revise Sec. 146.143 to read as follows:
Sec. 146.143 Preemption; State flexibility; construction.
(a) Continued applicability of State law with respect to health
insurance issuers. Subject to paragraph (b) of this section and except
as provided in paragraph (c) of this section, part A of title XXVII of
the PHS Act is not to be construed to supersede any provision of State
law which establishes, implements, or continues in effect any standard
or requirement solely relating to health insurance issuers in
connection with group health insurance coverage except to the extent
that such standard or requirement prevents the application of a
requirement of this part.
(b) Continued preemption with respect to group health plans.
Nothing in part A of title XXVII of the PHS Act affects or modifies the
provisions of section 514 of the Act with respect to group health
plans.
(c) Special rules--(1) In general. Subject to paragraph (c)(2) of
this section, the provisions of part A of title XXVII of the PHS Act
relating to health insurance coverage offered by a health insurance
issuer supersede any provision of State law which establishes,
implements, or continues in effect a standard or requirement applicable
to imposition of a preexisting condition exclusion specifically
governed by section 2701 of the PHS Act which differs from the
standards or requirements specified in section 2701 of the PHS Act.
(2) Exceptions. Only in relation to health insurance coverage
offered by a health insurance issuer, the provisions of this part do
not supersede any provision of State law to the extent that such
provision--
(i) Shortens the period of time from the ``6-month period''
described in section 2701(a)(1) of the PHS Act and
[[Page 78798]]
Sec. 146.111(a)(1)(i) (for purposes of identifying a preexisting
condition);
(ii) Shortens the period of time from the ``12 months'' and ``18
months'' described in section 2701(a)(2) of the PHS Act and Sec.
146.111(a)(1)(ii) (for purposes of applying a preexisting condition
exclusion period);
(iii) Provides for a greater number of days than the ``63-day
period'' described in sections 2701(c)(2)(A) and (d)(4)(A) of the PHS
Act and Sec. Sec. 146.111(a)(1)(iii) and 146.113 (for purposes of
applying the break in coverage rules);
(iv) Provides for a greater number of days than the ``30-day
period'' described in sections 2701(b)(2) and (d)(1) of the PHS Act and
Sec. 146.111(b) (for purposes of the enrollment period and preexisting
condition exclusion periods for certain newborns and children that are
adopted or placed for adoption);
(v) Prohibits the imposition of any preexisting condition exclusion
in cases not described in section 2701(d) of the PHS Act or expands the
exceptions described therein;
(vi) Requires special enrollment periods in addition to those
required under section 2701(f) of the PHS Act; or
(vii) Reduces the maximum period permitted in an affiliation period
under section 2701(g)(1)(B) of the PHS Act.
(d) Definitions--(1) State law. For purposes of this section the
term State law includes all laws, decisions, rules, regulations, or
other State action having the effect of law, of any State. A law of the
United States applicable only to the District of Columbia is treated as
a State law rather than a law of the United States.
(2) State. For purposes of this section the term State includes a
State (as defined in Sec. 144.103), any political subdivisions of a
State, or any agency or instrumentality of either.
0
10. Revise Sec. 146.145 to read as follows:
Sec. 146.145 Special rules relating to group health plans.
(a) Group health plan--(1) Definition. A group health plan means an
employee welfare benefit plan to the extent that the plan provides
medical care (including items and services paid for as medical care) to
employees (including both current and former employees) or their
dependents (as defined under the terms of the plan) directly or through
insurance, reimbursement, or otherwise.
(2) Determination of number of plans. [Reserved]
(b) General exception for certain small group health plans. The
requirements of this part, other than Sec. 146.130, do not apply to
any group health plan (and group health insurance coverage) for any
plan year if, on the first day of the plan year, the plan has fewer
than two participants who are current employees.
(c) Excepted benefits--(1) In general. The requirements of subparts
B and C of this part do not apply to any group health plan (or any
group health insurance coverage) in relation to its provision of the
benefits described in paragraph (c)(2), (3), (4), or (5) of this
section (or any combination of these benefits).
(2) Benefits excepted in all circumstances. The following benefits
are excepted in all circumstances--
(i) Coverage only for accident (including accidental death and
dismemberment);
(ii) Disability income coverage;
(iii) Liability insurance, including general liability insurance
and automobile liability insurance;
(iv) Coverage issued as a supplement to liability insurance;
(v) Workers' compensation or similar coverage;
(vi) Automobile medical payment insurance;
(vii) Credit-only insurance (for example, mortgage insurance); and
(viii) Coverage for on-site medical clinics.
(3) Limited excepted benefits--(i) In general. Limited-scope dental
benefits, limited-scope vision benefits, or long-term care benefits are
excepted if they are provided under a separate policy, certificate, or
contract of insurance, or are otherwise not an integral part of a group
health plan as described in paragraph (c)(3)(ii) of this section. In
addition, benefits provided under a health flexible spending
arrangement are excepted benefits if they satisfy the requirements of
paragraph (c)(3)(v) of this section.
(ii) Not an integral part of a group health plan. For purposes of
this paragraph (c)(3), benefits are not an integral part of a group
health plan (whether the benefits are provided through the same plan or
a separate plan) only if the following two requirements are satisfied--
(A) Participants must have the right to elect not to receive
coverage for the benefits; and
(B) If a participant elects to receive coverage for the benefits,
the participant must pay an additional premium or contribution for that
coverage.
(iii) Limited scope--(A) Dental benefits. Limited scope dental
benefits are benefits substantially all of which are for treatment of
the mouth (including any organ or structure within the mouth).
(B) Vision benefits. Limited scope vision benefits are benefits
substantially all of which are for treatment of the eye.
(iv) Long-term care. Long-term care benefits are benefits that are
either--
(A) Subject to State long-term care insurance laws;
(B) For qualified long-term care services, as defined in section
7702B(c)(1) of the Internal Revenue Code, or provided under a qualified
long-term care insurance contract, as defined in section 7702B(b) of
the Internal Revenue Code; or
(C) Based on cognitive impairment or a loss of functional capacity
that is expected to be chronic.
(v) Health flexible spending arrangements. Benefits provided under
a health flexible spending arrangement (as defined in section 106(c)(2)
of the Internal Revenue Code) are excepted for a class of participants
only if they satisfy the following two requirements--
(A) Other group health plan coverage, not limited to excepted
benefits, is made available for the year to the class of participants
by reason of their employment; and
(B) The arrangement is structured so that the maximum benefit
payable to any participant in the class for a year cannot exceed two
times the participant's salary reduction election under the arrangement
for the year (or, if greater, cannot exceed $500 plus the amount of the
participant's salary reduction election). For this purpose, any amount
that an employee can elect to receive as taxable income but elects to
apply to the health flexible spending arrangement is considered a
salary reduction election (regardless of whether the amount is
characterized as salary or as a credit under the arrangement).
(4) Noncoordinated benefits--(i) Excepted benefits that are not
coordinated. Coverage for only a specified disease or illness (for
example, cancer-only policies) or hospital indemnity or other fixed
indemnity insurance is excepted only if it meets each of the conditions
specified in paragraph (c)(4)(ii) of this section. To be hospital
indemnity or other fixed indemnity insurance, the insurance must pay a
fixed dollar amount per day (or per other period) of hospitalization or
illness (for example, $100/day) regardless of the amount of expenses
incurred.
(ii) Conditions. Benefits are described in paragraph (c)(4)(i) of
this section only if--
(A) The benefits are provided under a separate policy, certificate,
or contract of insurance;
(B) There is no coordination between the provision of the benefits
and an exclusion of benefits under any group
[[Page 78799]]
health plan maintained by the same plan sponsor; and
(C) The benefits are paid with respect to an event without regard
to whether benefits are provided with respect to the event under any
group health plan maintained by the same plan sponsor.
(iii) Example. The rules of this paragraph (c)(4) are illustrated
by the following example:
Example. (i) Facts. An employer sponsors a group health plan
that provides coverage through an insurance policy. The policy
provides benefits only for hospital stays at a fixed percentage of
hospital expenses up to a maximum of $100 a day.
(ii) Conclusion. In this Example, even though the benefits under
the policy satisfy the conditions in paragraph (c)(4)(ii) of this
section, because the policy pays a percentage of expenses incurred
rather than a fixed dollar amount, the benefits under the policy are
not excepted benefits under this paragraph (c)(4). This is the
result even if, in practice, the policy pays the maximum of $100 for
every day of hospitalization.
(5) Supplemental benefits. (i) The following benefits are excepted
only if they are provided under a separate policy, certificate, or
contract of insurance--
(A) Medicare supplemental health insurance (as defined under
section 1882(g)(1) of the Social Security Act; also known as Medigap or
MedSupp insurance);
(B) Coverage supplemental to the coverage provided under Chapter
55, Title 10 of the United States Code (also known as TRICARE
supplemental programs); and
(C) Similar supplemental coverage provided to coverage under a
group health plan. To be similar supplemental coverage, the coverage
must be specifically designed to fill gaps in primary coverage, such as
coinsurance or deductibles. Similar supplemental coverage does not
include coverage that becomes secondary or supplemental only under a
coordination-of-benefits provision.
(ii) The rules of this paragraph (c)(5) are illustrated by the
following example:
Example. (i) Facts. An employer sponsors a group health plan
that provides coverage for both active employees and retirees. The
coverage for retirees supplements benefits provided by Medicare, but
does not meet the requirements for a supplemental policy under
section 1882(g)(1) of the Social Security Act.
(ii) Conclusion. In this Example, the coverage provided to
retirees does not meet the definition of supplemental excepted
benefits under this paragraph (c)(5) because the coverage is not
Medicare supplemental insurance as defined under section 1882(g)(1)
of the Social Security Act, is not a TRICARE supplemental program,
and is not supplemental to coverage provided under a group health
plan.
(d) Treatment of partnerships. For purposes of this part:
(1) Treatment as a group health plan. Any plan, fund, or program
that would not be (but for this paragraph (d)) an employee welfare
benefit plan and that is established or maintained by a partnership, to
the extent that the plan, fund, or program provides medical care
(including items and services paid for as medical care) to present or
former partners in the partnership or to their dependents (as defined
under the terms of the plan, fund, or program), directly or through
insurance, reimbursement, or otherwise, is treated (subject to
paragraph (d)(2) of this section) as an employee welfare benefit plan
that is a group health plan.
(2) Employment relationship. In the case of a group health plan,
the term employer also includes the partnership in relation to any bona
fide partner. In addition, the term employee also includes any bona
fide partner. Whether or not an individual is a bona fide partner is
determined based on all the relevant facts and circumstances, including
whether the individual performs services on behalf of the partnership.
(3) Participants of group health plans. In the case of a group
health plan, the term participant also includes any individual
described in paragraph (d)(3)(i) or (ii) of this section if the
individual is, or may become, eligible to receive a benefit under the
plan or the individual's beneficiaries may be eligible to receive any
such benefit.
(i) In connection with a group health plan maintained by a
partnership, the individual is a partner in relation to the
partnership.
(ii) In connection with a group health plan maintained by a self-
employed individual (under which one or more employees are
participants), the individual is the self-employed individual.
(e) Determining the average number of employees. [Reserved]
Dated: November 24, 2004.
Mark B. McClellan,
Administrator, Centers for Medicare & Medicaid Services.
Dated: December 2, 2004.
Tommy G. Thompson,
Secretary, Department of Health and Human Services.
[FR Doc. 04-28112 Filed 12-29-04; 8:45 am]
BILLING CODE 4830-01-P